EMU: PMI Composite

Wed Oct 04 03:00:00 CDT 2017

Consensus Actual Previous
Composite - Level 56.7 56.7 55.7
Services - Level 55.6 55.8 54.7

September's flash composite output index was unrevised at 56.7 in the final report and so remains a full point above its final August mark.

The lack of any change to the headline print masked a slight positive adjustment to the flash service sector PMI. This is now put at 55.8, still some 2.3 points short of its manufacturing counterpart, but 1.1 points above its final mid-quarter reading and a 4-month high.

The upturn in services was led by new business which expanded at its fastest rate since March and backlogs which saw their sharpest gain in more than six years. Job creation was again close to the best recorded over the past decade and business optimism improved to a 4-month peak. Price pressures also increased with input cost inflation climbing to a 5-month high and selling prices rising at their steepest pace in since March.

In terms of composite output indices, the best performer was Germany (57.7) ahead of Ireland (57.6) and France (57.1). Spain (56.4) was not far behind but Italy (54.3) bucked the trend with a 6-month low.

The minimal revisions to the flash PMI data should leave the ECB on course to announce its QE tapering programme later in the month. Still, while the recovery in the real economy no longer seems to be an issue (this report is consistent with a 0.7 percent quarterly GDP growth rate), underlying inflation is at best edging up only slowly. Consequently, the end to asset purchases, let alone the removal of the current monetary stimulus, almost certainly remains a very long way off.

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.