January's flash manufacturing PMI was revised just a tick weaker to 56.4 in the final report. This leaves a 0.8 point increase versus the final December reading and the highest level in three years.
Significantly, growth of new orders hit its strongest mark since January 2014 and within this, exports touched a 4-month peak. Backlogs were up for the twenty-fourth month in a row and that despite the largest increase in sector headcount since August 2011. Purchasing activity similarly expanded sharply, albeit slightly less quickly than in December, and output itself rose more rapidly than at any time in the last thirty-three months.
Meanwhile, inflationary pressures continued to build with input cost inflation accelerating to 68-month high. Against this backdrop, factory gate prices were also hiked more aggressively, notably for intermediate goods.
In sum, the January PMI results are impressive and should be reflected in a strong start by German manufacturing to 2017.
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 500 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). The data are released 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 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.