EMU: PMI Composite FLASH

Wed Feb 21 03:00:00 CST 2018

Consensus Actual Previous
Composite - Level 58.5 57.5 58.6
Manufacturing - Level 59.3 58.5 59.6
Services - Level 59.0 56.7 57.6

The solid economic momentum seen at the start of the year was largely maintained in February according to the flash PMI results. At 57.5, the preliminary composite output index was down a larger than expected 1.3 points versus its final January reading (itself a 12-year high) and at a 3-month low. However, the latest outturn was still close to the all-time record.

The overall deceleration reflected some cooling in both the manufacturing and service sectors. Hence, the flash PMI for the former dropped 1.1 points to 58.5, a 4-month trough, while its services counterpart was off 1.3 points a 56.7. Both were on the soft side of expectations.

Aggregate output and new orders posted smaller rises than in January but employment growth remained at the joint highest mark in the last decade. Indeed, all of the latest component rates were very healthy and well above their respective historic norms. This was borne out in a third consecutive increase in business optimism to equal its highest level since comparable data were first compiled in 2012.

Meantime, price pressures were again elevated and both input cost and factory gate inflation held close to levels seen only rarely since early 2011. Significantly, there were some reports of higher salaries.

Regionally, the drop in the overall Eurozone index was fashioned by the core countries. Hence, in France the composite output measure declined 1.8 points to 57.8, a 4-month low, while in Germany it fell 1.6 points to 57.4, a 3-month trough. Elsewhere, business activity similarly slowed but still registered the second-largest expansion in nearly 12 years

February's (provisional) fall in the Eurozone's composite output index is nothing like large enough to dent what still looks very likely to be another healthy quarter for Eurozone economic activity. On current trends, first quarter real GDP should expand at a 0.9 percent quarterly rate. It is worth noting that the PMI surveys have been overly optimistic for a while now but they would need to be badly wrong for the growth this quarter to disappoint.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 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 survey, produced by Markit, uses 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.