DE: PMI Composite FLASH

Thu Dec 14 02:30:00 CST 2017

Consensus Actual Previous
Manufacturing - Level 62.1 63.3 62.5
Services - Level 54.6 55.8 54.9
Composite - Level 58.7 57.6

The economy looks to have had a very robust December. The flash composite output index was 58.7, up 0.5 points versus its final November reading and its highest mark in some eighty months.

Moreover, the headline improvement reflected gains in both manufacturing and services. The flash PMI for the former was 0.8 points stronger at a heady 63.3, a new record high, while its services counterpart advanced 1.5 points to 55.8, a 2-year peak.

Aggregate new orders posted their largest increase since April 2011 and job creation accelerated for a fourth straight month to stand only just short of March's 6-year high. Even so, backlogs continued to accumulate and further evidence of mounting pressure on capacity was provided by unprecedented supplier delivery delays. There was also a near-record surge in firms' stocks of purchases. Against this backdrop, business optimism rebounded from November's fall to post its strongest mark since mid-2012.

Inflation developments were again significant. The input cost rate eased from November's peal but was still historically very firm. Output prices followed suit and remained close to the previous month's 79-month high.

Today's report shows broad-based strength and should equate with a very healthy fourth quarter for total output. Ideally, the performance gap between manufacturing and services would be narrower but otherwise all the signs are that economic growth could well match the third quarter's impressive 0.8 percent quarterly rate. Indeed, the current momentum should be sustained through the start of 2018. With the labour market already very tight and capacity pressures clearly building, such a scenario should see inflation accelerate next year.

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.