EMU: PMI Manufacturing Index

February 1, 2017 03:00 CST

Consensus Actual Previous
Level 55.1 55.2 54.9

The final PMI data confirmed an apparently solid start to 2017 by Eurozone manufacturing. At 55.2, the headline index was revised a tick above its flash reading to stand at a 69-month peak.

Solid growth of output was supported by a healthy increase in new orders within which exports posted their best performance in three years. Euro weakness will have been a factor here. The buoyancy of demand in turn prompted the sharpest rise in sector headcount since April 2011. Not surprisingly therefore, the survey's new index of future output posted its best reading since the start of the series in July 2012.

Inflationary pressures continued to mount and input cost inflation climbed to a 68-month peak, largely reflecting higher commodity charges but deteriorating vendor performance was also a factor. In turn, this saw factory gate prices hiked by the greatest extent in five and a half years.

Regionally the best performer was Austria (57.3) ahead of the Netherlands (56.5) and Germany (56.4). Spain (55.6) and Ireland (55.5) also performed well. However, despite reaching a 68-month high, France (53.6) was well below the regional average as was Italy (53.0). Struggling Greece (46.6) saw a 16-month low and was the only reporting member not to register positive growth.

Overall today's results should put at least a modest smile on the face of the ECB. Eurozone manufacturing appears to be doing well and factory gate prices seem at last to be moving in the right direction. Services are ultimately more important, but in terms of economic recovery prospects in 2017, so far so good.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. 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). Released by Markit, national data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 89 percent of Eurozone manufacturing activity.

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 ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, 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.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.