EMU: PMI Composite

January 4, 2017 03:00 CST

Consensus Actual Previous
Composite - Level 53.9 54.4 53.9
Services - Level 53.1 53.7 53.8

In December, the Eurozone economy recorded its strongest pace of business activity since May 2011. At 54.4, the final composite output index was a tidy 0.5 points above both its flash estimate and its final November reading to ensure the most robust quarterly average of the year.

The upward revision was wholly due to a faster pace of activity in services where the flash PMI was adjusted 0.6 points firmer to 53.7, now just a tick below its final November outturn. New business rose at close to November's rate (a 10-month peak) and backlogs continued to gain ground. Companies responded with a twenty-sixth consecutive increase in staffing levels and an 11-month high on business confidence left it at one of the strongest levels seen in the last five years.

Meantime, input cost inflation accelerated to a 57-month record, mainly reflecting more expensive fuel and oil. More significantly, output charges were up for a second successive month and by the greatest extent since July 2011.

Regionally, in terms of composite output, the best performer was Spain (55.5) which just outpaced Germany (55.2). France (53.1), despite achieving an 18-month high, was still well short of the average as was Italy (52.9) which touched a 2-month low.

Today's data remain in line with fourth quarter Eurozone growth of around 0.4 percent. This would be a tick stronger than in the previous period but no doubt the ECB would like to see more if what appears to be gradually rising pressure on inflation is to be sustained. The performance of Germany will be vital here and, so far, the indications are quite promising but there is no room for complacency.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of the manufacturing and service sectors of the economy. 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 the final estimate of the services PMI. The data are provided by Markit using 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.