FR: PMI Composite FLASH

January 24, 2017 02:00 CST

Consensus Actual Previous
Composite - Level 53.3 53.8 52.8
Manufacturing - Level 53.4 53.4 53.5
Services - Level 53.1 53.9 52.6

French economic growth looks to have started 2017 at a respectable clip. With a flash composite output reading of 53.8, up from a final 53.1 in December, business activity expanded more quickly than expected and, indeed, at its fastest pace in some sixty-seven months.

However, the headline improvement was wholly attributable to a pick-up in activity rates in services where the flash PMI rose a full point to 53.9, a 19-month peak. Its manufacturing counterpart fell, although only by a minimal 0.1 points to 53.4.

Crucially, new business continued to increase in both sectors as did backlogs, potentially pointing to rising pressure on capacity. Aggregate employment was up for a third consecutive month and, while still quite modest, by the largest amount in more than five years. Business optimism in services remained positive but was slightly weaker than in December.

Overall input costs climbed sharply in both sectors but selling prices fell for a remarkable fifty-seventh straight month as a rise in manufacturing was more than offset by a decrease in services.

In general, today's finding are slightly stronger than expected and consistent with a pick-up in economic growth this quarter. The only real negative is (again) the persistent weakness of prices. This simply underlines the need for a solid and durable upswing in domestic demand if businesses are to even start to restore heavily squeezed profit margins back to more normal levels.

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.