FR: PMI Composite FLASH

Wed Aug 23 02:00:00 CDT 2017

Consensus Actual Previous
Composite - Level 55.0 55.6 55.7
Manufacturing - Level 54.5 55.8 55.4
Services - Level 55.9 55.5 55.9

Private sector business activity growth is stagnant overall while remaining strong this month according to the latest preliminary PMI survey. At 55.6, the Composite Output Index was unchanged from July's final take but came in stronger than the Econoday consensus calling for a decline to 55.0.

The unchanged reading, however, did mask an adjustment in the sectoral balance, with the Service Activity Index declining from the final result in July by a greater than expected 0.5 points to 55.5 while the Manufacturing PMI rose by a stronger than expected 1.1 points to 55.8, a 76-month high.

The softer reading for the service sector was the third successive monthly decrease in this index, nevertheless growth remains above the historical average for the sector. In contrast, manufacturing production growth was the sharpest in almost six and a half years.

French companies continued to report a strong pickup in new business activity, though the rate of growth eased to a 3-month low. Strong growth in output and new orders, which remain at multi-year highs, bolstered hiring and extended the sequence of employment growth to 10 months. Moreover, despite staff growth, companies reported backlogs of unfinished work, especially at manufacturers.

Input costs increased for the eighteenth successive month, although the rate of inflation was the least marked in 12 months. In contrast, output prices declined in August following a fractional rise in July, eating into the profit margins of businesses. The downturn in prices was concentrated in service providers, which saw the sharpest price drops since November. Output prices at manufacturers did rise, albeit less than in July.

Overall business confidence remained strong, though falling to a 7-month low, with optimism waning for manufacturers as well as service providers.

August flash results suggest that the French private sector continues to enjoy a solid enough third quarter, though at a slightly slower growth rate than at the end of the second quarter. Sustained healthy gains in employment and new orders should be reflected in another decent quarter for real GDP, but contrary to the ECB's aims inflation pressures remain very subdued.

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.