FR: PMI Composite FLASH

December 15, 2016 02:00 CST

Consensus Actual Previous
Composite - Level 51.6 52.8 52.3
Manufacturing - Level 51.9 53.5 51.5
Services - Level 52.0 52.6 52.6

The flash PMI survey suggests that French private sector business activity continued to expand in December and at a rather faster pace than in November. At 52.8, the composite output index was provisionally up 1.4 points versus its final mid-quarter reading, comfortably above market expectations and at an 18-month high.

The headline advance reflected stronger performances by both the manufacturing and service sectors. The former saw its flash PMI climb nearly 2 points to 53.5 (output 53.8), its best print in more than five years. Its service sector counterpart rose 1 point to 52.6, its highest outturn in three months.

Underpinning the upswing was the largest increase in overall new business in some eighteen months with both sectors seeing solid gains. Backlogs were also up again but an only modest net addition to headcount was wholly attributable to the factory sector as services were just flat. That said, business expectations in the latter improved to their best mark since March 2012.

Meantime, while aggregate input cost inflation rose to its fastest pace in four and a half years, factory gate prices still fell as a weaker services sector offset a small increase in manufacturing. Margins continue to be squeezed.

Today's report is clearly mixed but at least points to a pick-up in real GDP growth this quarter. Rising new orders also bode well for early 2017. However, the pace of activity needs to accelerate further if any serious dent is to be made in unemployment. Without this, household confidence is unlikely to improve enough to get consumer spending really going again.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 750 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 85 percent of the full survey sample. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced 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 purchasing managers' manufacturing indexes, 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.