EMU: PMI Manufacturing Index

Thu Nov 02 04:00:00 CDT 2017

Consensus Actual Previous
Level 58.6 58.5 58.1

The final PMI data for October confirmed another very healthy period for Eurozone manufacturing. At 58.5, the index was a tick short of its flash estimate but still a tidy 0.7 points above its final September reading and, more significantly, at an 80-month high.

Growth of manufacturing production was actually slightly down on September but this is likely to prove only temporary as new orders accelerated to register their best performance in nearly seven years. Job creation was also very robust again, rising at a new record pace. Despite this, the increase in backlogs was the joint largest in the history of the survey and additional evidence of capacity pressures was provided by the steepest advance in supplier delivery times in six-and-a-half years. Business optimism for the year ahead remained very positive, but still slipped from September's 3-month high.

Meantime, the buoyancy of demand was reflected in the sharpest advance in input costs in six months as well as a jump in factory gate inflation to its highest mark since June 2011.

The final PMI results suggest that Eurozone manufacturing is performing about as well as the ECB could realistically hope. In addition to a strong current performance, the outlook appears very bright and, crucially, inflationary developments at both the input and output levels are moving in the right direction. If manufacturing is anything to go by, Eurozone fourth the quarter GDP growth could well match the 0.6 percent quarterly rate provisionally posted in July-September.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). Released by Markit, national data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 89 percent of Eurozone manufacturing activity.

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 ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, 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.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.