DE: PMI Composite FLASH

Tue Oct 24 02:30:00 CDT 2017

Consensus Actual Previous
Manufacturing - Level 60.0 60.5 60.6
Services - Level 55.6 55.2 55.6
Composite - Level 56.9 57.8

The provisional PMI results for October indicate a slight deceleration in overall business activity but still signal a very promising start by the German economy to the current quarter. At 56.9, the key flash composite output index was 0.9 points short of its final September reading but more than a full point above its August outturn.

The headline decline was largely attributable to slower growth in services. At 55.2, the flash sector PMI was 0.4 points below its final September mark and also down on market expectations. However, the flash manufacturing PMI held up rather better, weighing in at a 60.5, just 0.1 points below its final September outturn and on the firm side of the market consensus. Aggregate new orders saw their largest increase in more than six years and the pace of job creation hit a 5-month high with manufacturing especially robust. Backlogs also climbed further and business confidence in the year ahead remained strongly positive and well above its long-run average.

Inflation pressures increased as output prices showed one of the steepest increases since mid-2011 (second only to that seen in March). Mounting cost burdens was the principal factor leading firms to hike charges, with input price inflation accelerating for the fourth month running to the highest overall mark since April.

While the drop in October's composite output index is disappointing, it unwinds only half of September's surprisingly large bounce. As such, today's data should not be viewed as too disappointing. Fourth quarter GDP growth may ease from what looks likely to have been a very good third quarter but not to the extent that should raise any eyebrows.

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.