FR: PMI Composite FLASH

Wed Jan 24 02:00:00 CST 2018

Consensus Actual Previous
Manufacturing - Level 58.7 58.1 59.3
Services - Level 58.9 59.3 59.4
Composite - Level 59.7 60.0

January's flash PMI report suggests that the French economy began 2018 in a better state than for many years. The key composite output index was provisionally put at 59.7, up 0.1 points versus its final December reading and only just shy of November's six-and-a-half year peak.

Both the manufacturing and service sectors enjoyed a very good period. The former saw its flash PMI dip 0.7 points from its final December level to 58.1 but this was still historically very solid. The services flash PMI was 0.2 points firmer at a very healthy 59.3.

In addition to output, further robust rises were recorded in aggregate new orders, where growth was the fastest since April 2011, and employment where the increase was also well above its long-run average. Despite the jump in headcount, backlogs recorded their steepest increase in more than six years indicating that capacity is being stretched. Overall business sentiment dipped but the decline was only marginal and confidence remained very positive in both sectors.

Inflation developments were relatively strong and broad-based. Input cost inflation was up at an 80-month high and selling prices registered their sharpest rise since August 2011.

The French private sector economy looks to have had a particularly good January and bulging order books and a high level of business confidence should be reflected in more of the same at least through the rest of the first quarter. There are also signs that stronger demand is allowing increasing inflation pressures to filter through into output prices. This is just what the ECB wants to see.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 750 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.