EMU: PMI Composite FLASH

Thu Mar 22 04:00:00 CDT 2018

Consensus Actual Previous
Composite - Level 56.7 55.3 57.5
Manufacturing - Level 57.9 56.6 58.5
Services - Level 56.0 55.0 56.7

Business activity in the Eurozone slowed more sharply than expected in March. The flash composite output index shed a surprisingly large 1.8 points versus its final February reading and, at 55.3, touched its lowest mark in fourteen months. This was the second decline in a row.

Both the manufacturing and service sectors recorded a fall in their respective expansion rates. The flash PMI for the former declined fully 2.2 points to an 8-month trough of 56.6, while services saw a more modest 1.2 point decrease to 55.0, its weakest print in five months. Growth of aggregate new orders eased for a third straight month and job creation, while still solid, was the least robust in half a year. However, an increase backlogs was larger than in February and, while dipping to a 4-month low, overall business confidence in the coming year remained elevated.

Inflation pressures softened as input costs saw their smallest rise in six month and output prices their least significant increase in the year to date.

Regionally, within the core the flash French composite output index weighed in at 7-month low of 53.6, a 2.3 point fall versus February's final reading, while its German counterpart was off 2.2 points at 55.4, its worst reading in eight months. Activity in the rest of the Eurozone recorded its weakest increase in five months.

Today's results point to a steady deceleration in Eurozone economic growth during the first quarter. However, a very robust January should still ensure a respectable quarterly GDP print of up to 0.8 percent for the period as a whole. Even so, the slowdown has been marked and apparently sharp enough to put some kind of lid on inflation. Bad weather may have played a part and a stronger euro seems to have hit exports. On current trends, second quarter growth could be significantly lower. The ECB will not be happy.

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.