EMU: PMI Composite FLASH

December 15, 2016 03:00 CST

Consensus Actual Previous
Composite - Level 53.9 53.9 54.1
Manufacturing - Level 53.7 54.9 53.7
Services - Level 53.8 53.1 54.1

The Eurozone economy had a moderately decent end to 2017 according to the new PMI survey. The flash December results showed the key composite output index unchanged from its final November mark at 53.9, although this masked diverging developments in the manufacturing and service sectors.

On the positive side, the flash manufacturing PMI weighed in at a healthy 54.9, up more than a point versus its final mid-quarter print and comfortably above market expectations. By contrast, the services index dropped 0.7 points to a 32-month low of 53.1.

Growth of aggregate new orders matched its November rate but only due to a 68-month high for manufacturers as services posted a slowdown. However, both sectors saw solid gains in backlogs which, in total, recorded their strongest increase since May 2011. As a further indication of increasing pressure on capacity, supplier delivery times also lengthened sharply. Even so, a smaller advance in services meant that the rise in aggregate employment was less than last time.

Meantime, for once inflation developments were clearly positive. Hence, input cost inflation climbed to a 66-month peak while the rate for output prices was the highest since July 2011.

Regionally within the core countries, the composite output index in France rose to 52.8, an 18-month peak while Germany dipped a couple of ticks to 54.8. The rest of the Eurozone saw growth ease slightly from November's 9-month high, again reflecting a deceleration in services.

Having only announced its intended policy stance for 2017 just last week, today's report is unlikely to have much impact on financial markets. However, the ECB should be cautiously content with solid orders growth pointing to a sustained economic recovery next year and, crucially, signs that rising capacity pressures may finally be starting to feed through into output prices.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 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 survey, produced by Markit, uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

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.