DE: PMI Composite FLASH

Wed Feb 21 02:30:00 CST 2018

Consensus Actual Previous
Manufacturing - Level 60.5 60.3 61.2
Services - Level 57.0 55.3 57.0
Composite - Level 57.4 58.8

In line with its French neighbour, the German private sector economy probably cooled a little in February. However, growth also looks to have remained historically firm and the first quarter should see another solid overall performance. At 57.4, the flash composite output index was 1.6 points shy of its final, 81-month high, January mark and at a 3-month low. Even so, this was still amongst the strongest readings recorded in the survey's history.

The headline decline reflected mainly slower growth in services where the flash sector PMI dropped 2 points to 55.3, similarly a 3-month trough. Its manufacturing counterpart decreased only 0.8 points and, at 60.3, continued to signal boom conditions.

In addition to output, compared with January smaller rises were seen in aggregate new orders (notably exports), backlogs and employment. Overall headcount recorded its weakest increase since last September although this was probably biased down by a very tight labour market. In any event, optimism about the future was underscored in a record print for business confidence, driven by a sharply more positive assessment by services.

Meantime, price pressures continues to build with input costs climbing steeply again as delivery times lengthened by the second largest amount since the data were first compiled in April 1996. In turn, output prices were raised and inflation here posted its second highest reading since July 2008.

Despite the drop in the headline index, the PMI results point to a quarterly rise in real GDP of around 0.9 percent. Some decline from recent historically high, if not record, readings was inevitable at some point but so far, any deceleration in economic activity appears to have been only very mild. As a result, pipeline inflation pressures should continue to mount.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 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.