DE: PMI Composite FLASH

Thu Mar 22 03:30:00 CDT 2018

Consensus Actual Previous
Manufacturing - Level 59.7 58.4 60.3
Services - Level 55.0 54.2 55.3
Composite - Level 55.4 57.4

Business activity was robust, but also notably softer than expected this month according to the flash PMI survey. At 55.4, the composite output index provisionally fell more than 2 points from its final February mark to record its second consecutive decline and its weakest outturn in eight months.

The cooling signalled by the headline index reflected slower growth in both manufacturing and services. The flash PMI for the former dropped a surprisingly sharp 1.8 points to 58.4, also an 8-month low, while its services counterpart was down 1.1 points at 54.2, a 7-month trough.

Growth of manufacturing output (57.5 after 61.7) was significantly weaker and aggregate new orders saw their smallest rise since last July. However, employment continued to expand strongly and an increase in backlogs was larger than in mid-quarter. Overall business confidence in the year ahead moderated further (18-month low in manufacturing) but remained historically firm.

Meanwhile, inflation pressures continued to build on the back of steep gains in both input costs and factory gate prices. The inflation rate for the latter actually eased to its lowest mark in three months but was still higher than at any other point since April 2011.

Despite their decline during the period, the composite output indices suggest that first quarter German GDP growth remains on course for something close to a 0.6 percent quarterly rate. If so, the second quarter is unlikely to be as robust but should still be firm enough to ensure that pipeline inflation pressures remain on the up.

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.