FR: PMI Composite FLASH

Wed Feb 21 02:00:00 CST 2018

Consensus Actual Previous
Manufacturing - Level 58.1 56.1 58.1
Services - Level 59.0 57.9 59.3
Composite - Level 57.8 59.7

February seems to have been another very good month for French economic activity although growth appears to have slowed compared with the start of the year. At 57.8, the flash composite output index was down 1.8 points versus its final January mark and at a 4-month low. However, it was still easily high enough to signal sustained robust economic growth.

The drop in the headline index reflected falls in both the manufacturing and service sectors. The former flash PMI weighed in at 56.1, a 2.3 point decline versus its final January reading and also a 4-month trough. Its service sector counterpart eased a smaller 1.3 points but, at 57.9, also saw its softest print since last October.

Growth of new orders slipped in both sectors but remained historically firm and aggregate backlogs continued to climb despite an increase in headcount that was only just short of November's 16-and-a-half year high. In fact, business confidence rose to a 9-month peak with sentiment improving in manufacturing and services alike.

Meantime, input costs increased again and cost inflation moderated only slightly from January's 79-month high. In turn, overall output prices made further ground albeit at a much slower rate and, again, down on their rate at the start of the year.

Despite its fall, the flash January composite output index still compares very favourably with its long-run average (53.9). Economic growth may have decelerated somewhat in mid-quarter but underlying trends in output and new orders continue to paint a very positive overall picture.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 750 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.