EMU: PMI Manufacturing Index

Thu Feb 01 03:00:00 CST 2018

Consensus Actual Previous
Level 59.6 59.6 60.6

The flash sector PMI was unrevised at 59.6 in the final report for January. This left just a 1 point drop versus the record final December outturn and points to a very healthy Eurozone manufacturing sector at the start of the year.

In line with the preliminary results, the revised data still show robust, albeit smaller, gains in output and new orders. In fact, both saw expansion rates not far short of their respective all-time highs. The same was true of employment and backlogs similarly rose at a rate only just shy of its year-end pace. Going one better, business optimism regarding the year ahead actually saw a new record peak.

Inflationary pressures continued to build with both input costs and factory gate prices rising at accelerated rates. The latter saw its strongest reading in eighty months.

Regionally, the best performer was the Netherlands (62.5) just ahead of Austria (61.3) and Germany (61.1). Italy (59.0) and France (58.4) both made healthy progress as did Ireland (57.6). Spain and Greece (both 55.2) lagged but still saw overall activity expand at a respectable rate.

In summary, Eurozone manufacturing continued to enjoy near boom conditions last month. In part this reflects a sizeable German contribution where overheating is already a serious concern, but conditions are reassuring positive across the region as a whole. More of the same and already stretched capacity will translate into a faster rate of output price growth and, with it, put renewed upside pressure on HICP inflation.

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.