DE: PMI Manufacturing Index

Tue Jan 02 02:55:00 CST 2018

Consensus Actual Previous
Level 63.3 63.3 62.5

The final PMI for December weighed in at 63.3, unchanged from its flash estimate, 0.8 points above its final November mark and a new record high.

Production growth was the strongest since early 2011 and supported by another sizeable surge in new orders, notably from abroad where the gain was the joint largest on record. Employment duly climbed sharply, albeit by less than November's 80-month high but backlogs still rose at a near record-equalling pace. At the same time, stocks of purchases rose for the sixth month running and at the fastest rate since June 1998. In the same vein, lead times for inputs increased in December to the greatest extent in more than two decades.

Input costs were up sharply on average in December, driven mainly by higher prices paid for raw materials. In turn, this in turn led to another steep increase in prices charged by manufacturers, with the rate of inflation down only slightly from the previous period's six-and-a-half-year peak.

Against this backdrop business confidence climbed to a 6-month high. Manufacturing would appear to have had a particularly good fourth quarter and the sector should have made a sizeable contribution to real GDP growth. Just as importantly, first quarter prospects seem to be very bright too and inflationary pressures are continuing to build.

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 500 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). The data are released 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 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.