EMU: PMI Composite

Tue Sep 05 03:00:00 CDT 2017

Consensus Actual Previous
Composite - Level 55.8 55.7 55.7
Services - Level 54.9 54.7 55.4

Private sector business activity expanded at just a marginally slower pace than originally thought last month. At 55.7, the final key composite output index was only a tick short of its flash reading and so unchanged from its final print in July.

The minimal negative revision reflected a slightly softer services sector where the flash PMI was shaved 0.2 points to 54.7. This was down from a final 55.4 in July and was in large part due to a 1.1 point drop in the French index. Still, the outturn was amongst the best in the last six years and, crucially, new business inflows remained robust, as did backlogs. Job creation slowed but was also solid and business optimism held onto healthy levels.

Meantime, price pressures picked up and both input cost and output price inflation accelerated to 3-month highs. That said, both rates remained well below the peak levels seen earlier in the year.

Regionally in terms of composite output the best performer was Ireland (58.2) ahead of Germany and Italy (both 55.8). Spain (55.3) and France (55.2) were not far behind.

With overall business confidence down versus July but still historically firm and new business expanding at a solid clip, the third quarter Eurozone economy looks to be holding up well. Quarterly real GDP growth in the current period looks good for something close to the 0.6 percent rate achieved in April-June. Inflation also seems to be moving in the right direction although it is far from certain yet that there is sufficient pressure on overall capacity to ensure the attainment of the ECB's near-2 percent target.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of the manufacturing and service sectors of the economy. 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 the final estimate of the services PMI. The data are provided by Markit using a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

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.