EMU: PMI Manufacturing Index

Tue Jan 02 03:00:00 CST 2018

Consensus Actual Previous
Level 60.6 60.6 60.1

The flash December PMI was unrevised in the final data. At 60.6, the headline index remained more than 2 points above its final November reading and at a new record high.

Manufacturing output saw near-record growth on the back of the strongest gain in new orders since April 2000 with both domestic and overseas demand very robust. Job creation accelerated again and with backlogs expanding at a record pace, business optimism climbed to its highest level on record.

Inflation developments were also relatively robust with both the rate of change of input costs and factory gate prices elevated, albeit down from their respective November readings.

The core countries were especially buoyant with the French PMI at 58.8, a 17-year peak, and its German counterpart up at 63.3, a new series record. In fact with Austria (64.3) and Ireland (59.1) also registering new peaks and Greece (53.1) recording a 114-month high, today's report confirmed a reassuringly broad-based based pick-up in Eurozone business activity.

Taken at face value, the final PMI data point to an excellent December for Eurozone manufacturing and should be reflected in a very healthy rise in fourth quarter production. At least as importantly, the buoyancy of order books suggests that 2018 will get off to a similarly solid start. With inflation pressures also on the up, the ECB could not realistically hope for the sector to do any better.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). Released by Markit, national data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 89 percent of Eurozone manufacturing activity.

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 ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, 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.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.