EMU: PMI Composite FLASH

Wed Jan 24 03:00:00 CST 2018

Consensus Actual Previous
Composite - Level 58.0 58.6 58.0
Manufacturing - Level 60.4 59.6 60.6
Services - Level 56.5 57.6 56.5

If the latest PMI findings are to be believed, the Eurozone private sector economy began the New Year in much the same vein as it ended the last. January's flash composite output weighed in at 58.6, up 0.5 points from December's final print and above market expectations. It was also a 139-month high.

Compared with December, January's report showed a much better balance and while strength was again most apparent in manufacturing, its outperformance was notably less marked this time. Hence, while the flash manufacturing PMI shed a full point to (a still very solid) 59.6, its service sector counterpart gained a point to 57.6, a 125-month peak.

As in December, the buoyancy of the headline reflected a healthy and broad-based rise in new business, the second largest since July 2007. Backlogs were also up again despite the steepest rise in aggregate headcount since September 2000 and against this backdrop, business confidence recorded its most optimistic reading in eight months.

Strong activity rates contributed towards a further increase in inflation pressures as vendor delivery times registered one of the most significant lengthenings on record. Input cost inflation accelerated to an 81-month peak while the increase in output prices was the steepest since April 2011.

The core countries had another very good month with the flash composite output index up a tick at 59.7 in France and down just a 0.1 points at 58.8 in Germany. At the same time, the rest of the region recorded the strongest activity rate since July 2006.

In summary, January's preliminary PMI findings are very robust indeed. Current Eurozone output is very strong and the forward-looking indicators show no signs of any significant slowdown to come. Moreover, economic growth looks widespread and better balanced. It is no surprise that capacity pressures continue to rise sharply. Unemployment is still high (8.7 percent in November) but it is hard not to see some acceleration in core inflation over coming quarters. The ECB's hawks will be all the more agitated by today's report.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 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 survey, produced by Markit, uses 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.