DE: PMI Composite FLASH

Fri Sep 22 02:30:00 CDT 2017

Consensus Actual Previous
Manufacturing - Level 59.0 60.6 59.4
Services - Level 53.6 55.6 53.4
Composite - Level 57.8 55.7

In line with its French neighbour (see today's calendar entry), the latest PMI report paints a reassuringly and surprisingly upbeat picture of German private sector business activity this month. At 57.8, the flash composite output index was a sizeable 2 points above its final August reading and at its highest level in seventy-seven months.

The buoyancy of the headline measure was attributable to faster growth in both manufacturing and services. The flash PMI for the former climbed 1.3 points from its final August reading to a heady 60.6, also a 77-month peak, and for the latter, gained 2.1 points to 55.6, its best outturn in half a year.

Manufacturing output (61.8) was especially robust and both sectors saw strong increases in new orders. Vigorous export growth was an important factor underpinning the jump in goods production. Employment continued to expand briskly and at a pace that was much in line with the average over the year to date. Even so, backlogs still rose significantly, the combined total increasing at its fastest rate since February 2011. Business optimism touched a 4-month high and was the second strongest since the data were first compiled in July 2012.

Input costs recorded their steepest increase in five months, notably in manufacturing. Aggregate selling prices were also up markedly, although the inflation rate here actually slipped from last time.

It is difficult to find much wrong in today's report. If borne out in the hard data, the survey points to a very strong climax to the current quarter and also holds out the prospect of an impressively high rate of economic growth through year-end. Even the performance gap between manufacturing and services has narrowed usefully. The upcoming flash Eurozone PMI should comfortably exceed earlier market expectations.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 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.