EMU: PMI Composite

Mon Feb 05 03:00:00 CST 2018

Consensus Actual Previous
Composite - Level 58.6 58.8 58.1
Services - Level 57.6 58.0 56.6

The Eurozone economy began 2018 in even better shape than originally thought according to the final PMI report for January. At 58.8, the revised composite output index was 0.2 points above its flash estimate and at its highest level since June 2006.

The upward revision in part reflected a positive adjustment to the services PMI which now prints 0.4 points stronger at 58.0, a near ten-and-a-half-year peak. New business increased at its quickest pace in over a decade, exerting fresh pressure on capacity as reflected in a further solid increase in outstanding business. The combination of higher new orders and rising backlogs encouraged firms to boost their payrolls and these rose at an identical pace to November and December. The overall degree of optimism was the second-highest in almost seven years. Indeed, this was only bettered during this sequence in May of last year.

Meantime, input price inflation hit an 81-month high while output charges increased by the greatest extent in nine-and-a-half years. Significantly, concurrent rises in selling prices were seen across all of the nations covered for the first time since July 2008

Regionally in terms of composite output, the best performer was France (59.6) ahead of Germany, Italy and Ireland (all 59.0) and Spain (56.7).

If January's activity rate can be sustained through February and March, it should equate with first quarter Eurozone real GDP expanding at around a 1.0 percent quarterly rate. The upswing looks increasingly broad-based and some countries are clearly struggling with capacity pressures. If the official data follow suit, the ECB may yet be forced to amend its policy stance to something rather less accommodative sooner than they currently anticipate.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of the manufacturing and service sectors of the economy. 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 the final estimate of the services PMI. The data are provided by Markit using 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.