EMU: PMI Composite

Tue Dec 05 03:00:00 CST 2017

Consensus Actual Previous
Composite - Level 57.5 57.5 56.0
Services - Level 56.2 56.2 55.0

November was a very good month for Eurozone business activity. At 57.5, the final composite output index was unchanged from its flash estimate and so still 1.5 points above its final October mark and at a six-and-a-half-year peak.

The flash services PMI was also unrevised and so stays at 56.2, a 6-month high. As previously indicated, headline strength reflected very healthy gains in output, new orders, backlogs and employment and, importantly, was broad-based across the reporting countries. Moreover, aggregate price pressures also intensified and both input cost and output charge inflation were similarly at or near six-and-a-half year records.

Regionally in terms of final composite output indices, the best performer was France (60.3) ahead of Ireland (57.7) and Germany (57.3). Italy (56.0) performed well too and Spain (55.2) held up impressively in the face of the ongoing Catalan crisis.

The latest PMI results point to a quarterly rate of Eurozone economic growth of about 0.8 percent which, if accurate, would equal the best performance by the region since the first quarter of 2011. Crucially too, capacity pressures are continuing to rise which should mean that the increase in underlying inflation so desperately sought by the ECB is not too far away.

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.