DE: PMI Manufacturing Index

Thu Feb 01 02:55:00 CST 2018

Consensus Actual Previous
Level 61.2 61.1 63.3

A booming German manufacturing sector was confirmed in the final PMI data for January. At 61.1, the revised index was just a tick below its flash estimate and, while 2.2 points short of December's record, still indicative of very robust conditions in general.

Growth of output, new orders and employment all slowed slightly versus year-end but remained easily strong enough to underline another very good monthly performance. Pressures on capacity continued to rise with backlogs again sharply higher despite another sizeable addition to the sector's headcount. Moreover, the increase in vendor delivery times was one of the largest on record. Not surprisingly, manufacturers' expectations for future output remained strongly optimistic, albeit slightly less so than at year-end.

Against this backdrop, input cost inflation climbed to nearly a 7-year high and factory gate prices saw their steepest rise since early 2011.

There is nothing new in today's revised report which simply underlines the current and, potentially, prospective buoyancy of German manufacturing. Without some slowdown in activity rates, pressure on final product prices can only intensify in coming months.

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 500 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). The data are released 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 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.