FR: PMI Manufacturing Index

June 1, 2017 02:50 CDT

Consensus Actual Previous
Level 54.0 53.8 55.1

The flash May PMI was revised down 0.2 points to 53.8 in the final report for the month. This was 1.3 points short of its final April reading and, while still indicative of positive growth, suggests a significant slowdown in activity in mid-quarter.

Output and new orders both continued to rise but at softer rates than in April but firms still expanded their headcount, albeit at only a moderate rate. The increase in employment was too small to prevent a further marked accumulation of work outstanding. Some evidence of pressure on capacity was provided in a further lengthening in supplier delivery times, with a number of firms commenting on bottle-necks in the supply chain. Optimism towards future output growth was sustained.

Inflation news was mixed. Input costs rose again, but the rate of inflation declined to its lowest level in five months, while factory gate prices edged only slightly higher.

The modest downward revision to the headline index is too small to be of any real significance. Nonetheless, manufacturing activity appears to have cooled last month, policymakers will be hoping that it is just a temporary pause.

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 400 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.