FR: PMI Composite FLASH

May 23, 2017 02:00 CDT

Consensus Actual Previous
Manufacturing - Level 55.1 54.0 55.1
Services - Level 56.6 58.0 57.7
Composite - Level 57.6 57.4

Private sector business activity picked up surprisingly strongly this month according to latest preliminary PMI survey. At 57.6, the flash composite output index was a full point above its final April outturn and at a new 6-year high.

However, May's headline improvement was limited to the services sector where the flash PMI gained 1.3 points versus its final April print to 58.0, also a 72-month peak. By contrast, its manufacturing counterpart slipped more than a point to 54.0, although in itself this was still indicative of a moderately decent month. In fact, the output sub-index was down just three ticks at a solid enough 55.8.

Both sectors saw further significant gains in new orders and backlogs and strength here ensured that aggregate employment registered its largest increase in sixty-nine months. Not unexpectedly against this backdrop, business optimism about the year ahead edged a little firmer from April's already healthy reading.

Meantime, input costs increased for the fifteenth successive month and although the rate of inflation eased from April's 70-month high, it remained elevated. In turn, this prompted the second successive rise in overall output prices within which services registered their first advance since March 2012.

The PMI results are not quite as positive about manufacturing as the INSEE climate indicator survey just released (see calendar entry). Nonetheless, both reports suggest that overall economic growth this quarter should easily exceed the rather disappointing 0.3 percent quarterly rate posted at the start of the year. With inflation also moving slowly in the right direction, the ECB should be cautiously happy.

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.