The December PMI signalled a solid end to 2016 by the Swiss economy. At 56.0, the headline index was 0.6 points short of its November mark but still at its second highest level of the year and easily high enough to indicate a solid expansion in business activity.
Production (58.9) was again very robust and although quantity of purchases slowed (54.6 after 58.1) it too remained comfortably in positive growth territory while backlogs (60.3) were at boom levels. This, combined with a further marked lengthening in vendor delivery times (58.8) and another fall in stocks of finished goods (45.1), suggests that capacity constraints could become an issue in 2017. That said, producers would seem to be less than convinced about the outlook as employment (49.6) was slightly down on November. Meantime inflation news was upbeat with purchase prices (59.5) registering their strongest gain since May 2011.
The SNB will welcome today's report which, if borne out in the hard data, should be reflected in a significant pick-up in fourth quarter real GDP. That said, the central bank will also be concerned that the apparent improving economic picture at home could prove short-lived should it trigger fresh capital inflows into what it sees as an already heavily overvalued CHF.
The Association for Purchasing and Supply Management's Purchasing Managers' Index (PMI) is produced in conjunction with Credit Suisse. The PMI provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector of purchasing managers. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).
The PMI is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole. To construct the PMI the Swiss Association of Purchasing and Materials Management conducts monthly surveys of purchasing executives on their performance in the current month versus the previous period. Because the amount of materials ordered by purchasing managers parallels the level of manufacturing production, the PMI is a gauge of production growth. The results are indexed with a centerline of 50; values above 50 indicate expectations of expansion and values below 50 indicate expectations of contraction for the manufacturing sector.