DE: PMI Composite FLASH

January 24, 2017 02:30 CST

Consensus Actual Previous
Composite - Level 55.4 54.7 54.8
Manufacturing - Level 55.4 56.5 55.5
Services - Level 54.5 53.2 53.8

Private sector business activity unexpectedly slowed a little at the start of 2017. At 54.7, the flash composite output index was down 0.8 points from its final December mark and, while still comfortably into growth territory, at a 4-month low.

The headline drop reflected some cooling in services and masked a solid pick-up in manufacturing. Hence, while the flash PMI for the former dropped 1.1 points to also a 4-month low of 53.2, its manufacturing counterpart climbed nearly a full point to 56.5, a 3-year high.

Manufacturing output (57.6) was particularly strong but both sectors saw solid gains in new business while aggregate backlogs also rose further, reflecting capacity constraints in manufacturing. Employment was again a major bright spot and overall headcount increased by the second largest amount since September 2011. At the same time, aggregate business expectations climbed to a 3-year high.

Meanwhile, inflation news was mixed. Total input costs rose at their sharpest pace in more than five years but output price inflation eased a little with firms citing competitive market conditions as the principal reason for not raising prices more steeply.

In sum, the provisional January findings are quite optimistic about the German economy this month. The apparent divergence between manufacturing and services takes some of the gloss off the overall picture but both sectors are performing well enough to suggest that first quarter GDP should not disappoint.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 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.