EMU: PMI Composite

Mon Nov 06 04:00:00 CST 2017

Consensus Actual Previous
Composite - Level 55.9 56.0 56.7
Services - Level 54.9 55.0 55.8

The final PMI data confirmed another solid month for business activity in October. The flash composite output index was revised a tick firmer to 56.0 which, while 0.7 points short of its final September reading, was amongst the highest recorded over the last six-and-a-half years.

The minor positive adjustment to the headline index was mirrored in services where the flash PMI was also nudged 0.1 points stronger to 55.0. New orders growth steadied at September's 6-month peak and employment posted one of its sharpest increases in almost ten years. Business confidence in the year ahead was also slightly above its long-run trend. Meantime, price pressures continued to build with average costs rising at the fastest pace since March and the rate of output charge inflation climbing to a 7-month high.

In terms of composite output, the best performer was France (57.4) ahead of Germany (56.6) and Ireland (56.0). Spain (55.1) also held up quite well but Italy (53.9) slowed to a 9-month low.

Taken at face value, today's results put the Eurozone on track for quarterly real GDP growth of around 0.6 percent in October-December. The buoyancy of new business is especially promising and the ECB should take some heart from what would seem to be gradually accelerating inflation.

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.