December's manufacturing PMI was revised just a tick firmer to 55.6, up 1.3 points versus its final mid-quarter reading and close to a 3-year peak.
As previously indicated, last month's results were underpinned by marked expansions in both output and new business. In particular, new orders rose for a twenty-fifth consecutive month and at a rate only just short of the record over that period. At the same time, the latest increase in production was the strongest since July and reflected broad-based advances amongst all the major subsectors. Despite this, backlogs recorded their steepest increase since the start of 2014 which, with job creation remaining robust, warns of some further intensification of pressures on capacity. In the same vein, average lead times for vendors lengthened to the greatest extent since mid-2011.
Against this backdrop, higher input costs were duly reflected in a jump in factory gate prices and the rate of inflation here climbed to a 65-month high.
December's outturn put the fourth quarter manufacturing PMI (55.0) at one of its highest levels in the last three years and bodes well for a significant contribution from the sector to overall real GDP growth. After a disappointingly small 0.2 percent quarterly rate in August-September, the year probably closed out with a respectable 0.4-0.5 percent print. With inflationary pressures also on the up, the early signs are that the German economy will provide the kind of start to 2017 that the ECB would like to see for the Eurozone as a whole.
The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 500 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by Markit.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.
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