FR: PMI Composite

Mon Feb 05 02:50:00 CST 2018

Consensus Actual Previous
Composite - Level 59.7 59.6 59.6
Services - Level 59.3 59.2 59.1

The final composite output index in January was 59.6, down just a tick versus its flash estimate and unchanged from its final December reading. The outcome confirmed another very good month for French private sector economic activity.

The final services PMI weighed in at 59.2, also 0.1 points short of its preliminary reading but a tick above its final year-end print.

As indicated previously, in addition to aggregate output, further robust rises were recorded in new orders, where growth was the fastest since April 2011, and employment where the increase was also well above its long-run average. Despite the jump in headcount, backlogs recorded their steepest increase in more than six years indicating that capacity is being stretched. Overall business sentiment dipped but the decline was only marginal and confidence remained very positive in both sectors.

Inflation developments were relatively strong and broad-based. Input cost inflation was up at an 80-month high in services and selling prices were also hiked again.

The French private sector economy looks to have had a particularly good January and bulging order books and a high level of business confidence should be reflected in more of the same at least through the rest of the first quarter. There are also signs that stronger demand is allowing increasing inflation pressures to filter through into output prices.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 750 manufacturing and service sector companies. 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.

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.