DE: PMI Composite FLASH

Thu Nov 23 02:30:00 CST 2017

Consensus Actual Previous
Manufacturing - Level 60.3 62.5 60.5
Services - Level 54.8 54.9 55.2
Composite - Level 57.6 56.9

The German economic upswing looks to have gained unexpected momentum in November. At 57.6, the flash composite output index was a full point above its final October mark and indicative of what should be a very good month for business activity.

The headline gain was dominated by manufacturing where the flash PMI jumped nearly 2 points to 62.5, its highest reading in some eighty-one months. By contrast, its services counterpart lagged significantly, rising just 0.2 points to 54.9. Rather worryingly, the performance gap here now stands at its widest in more than seven years.

Overall new orders again registered solid growth, touching their strongest point since early 2011 thanks to the buoyancy of manufacturing. Backlogs similarly extended their trend accumulation and posted a record equalling rate in manufacturing. Job creation also remained very robust, claiming a six-and-a-half-year peak. Not surprisingly, business optimism was strongly positive.

Meantime, strains on capacity continued to build and were reflected in the sharpest deterioration in vendor performance in the survey's history. Input costs rose at their steepest rate since 2011 and output prices at their fastest pace in more than six years.

The provisional November PMI results are strong and should be borne out in another solid performance by real GDP this quarter. Service sector activity is not keeping up with goods producing industries but this may reflect labour shortages. In any event, pressure on capacity is clearly intensifying and, on the basis of this report, higher CPI inflation would seem to be just a matter of time.

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.