DE: PMI Composite FLASH

Wed Jan 24 02:30:00 CST 2018

Consensus Actual Previous
Manufacturing - Level 63.0 61.2 63.3
Services - Level 55.5 57.0 55.8
Composite - Level 58.8 58.7

Robust gains in business activity at the end of 2017 look likely to have been carried through into the start of 2018. Hence, January's flash composite output index was 58.8, just a tick short of December's (final) 80-month high.

With a flash PMI of 61.2, down 2.1 points versus its final year-end print, the manufacturing sector underperformed market expectations and was responsible for the minimal headline dip. However, the new level continues to signal boom conditions. By contrast, its services counterpart saw a 1.2 point advance to 57.0, easily beating the market consensus and an 82-month peak.

While aggregate current output was again very strong, manufacturing (62.2) once more led the way with its second steepest rise in more than six years. Growth of new business eased in both categories and, combined, saw its slowest pace since last August. However, the deceleration here was only relative and the latest increase was still well above the historic norm. Indeed, backlogs were up once more and overall employment posted its sharpest gain since early 2011. In fact, capacity pressures remained very evident in the second most marked increase in delivery times on record. Business confidence went one better and posted its highest ever reading.

Strong demand contributed to the steepest increase in input costs in nearly seven years and cost inflation touched its highest mark since April 2011. In response, output price inflation similarly accelerated to a near-7-year peak.

Despite some moderation in orders growth the preliminary January PMI findings are unambiguously strong. The narrowing in the performance gap between manufacturing and services is reassuring and everything else in the data points to another very robust GDP print this quarter. Meantime, price pressures continue to build and suggest that some pick-up in the underlying CPI inflation trend is just a matter of time.

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.