FR: PMI Composite

Mon Nov 06 02:50:00 CST 2017

Consensus Actual Previous
Composite - Level 57.5 57.4 57.1
Services - Level 57.4 57.3 57.0

French private sector business activity was revised just marginally softer in the final PMI report for October. At 57.4, the key composite output index was a tick short of its flash estimate but still 0.3 points above its final September reading to register a 77-month high.

The minor downward adjustment was partly attributable to slower services growth where the final PMI weighed in at 57.3, also 0.1 points below its preliminary estimate and 0.3 points higher than its final September mark. As indicated earlier, what would appear to be another very healthy month for the sector was underpinned by a strong pick-up in new orders and the second largest increase in headcount since March 2008. Even so, backlogs accumulated for a twentieth successive month and at a rate well above the long-run average. Business sentiment regarding the year ahead remained positive but, rather surprisingly, still weakened significantly from September to notch a 9-month low.

Average input costs continued to climb quite steeply with higher wages a factor. In turn, output prices were also raised and, while only modest, the rate of charge inflation was the most marked in over five-and-a-half years.

Outside of the drop in business sentiment, the final October results are promising enough. Both manufacturing (PMI 56.1) and services look to be performing well and new business is expanding at a fast enough rate to suggest that the economy will have good momentum moving into 2018. However, inflationary pressures remain relatively muted.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 750 manufacturing and service sector companies. 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.

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.