EMU: PMI Manufacturing Index

Tue Apr 03 03:00:00 CDT 2018

Consensus Actual Previous
Level 56.6 56.6 58.6

The flash manufacturing PMI for March was unrevised at 56.6 in the final report. This was down from 58.6 in February and an all-time high of 60.6 at the end of last year. While still in line with decent growth of business activity, this was the third straight decline and an 8-month low. it also points to a probable further loss of momentum moving into the current quarter.

As shown in the flash release, the headline decline reflected smaller gains in output, new orders and employment. All sub-indices remained comfortably in positive growth territory but were also well short of their respective levels seen at the start of the year. Indeed, sentiment regarding the year ahead saw its weakest outturn in fifteen months.

Input cost inflation fell to a 6-month low but remained marked, while factory gate prices continued to climb at a solid rate, albeit the slowest in a year.

Regionally, the best performer was the Netherlands (61.5) ahead of Germany (58.2) and Austria (58.0). Italy (55.1), Greece (55.0) and Spain (54.8) were not far behind but all saw multi-month lows. Ireland (54.1) and France (53.7) similarly posted their worst readings in a year.

Largely courtesy of a strong January, the first quarter Eurozone PMI weighed in at a very respectable 58.2. However, this masks a clear deceleration in the sector's business activity over the period and the forward-looking components all argue for more of the same this quarter. If so, what has been a steady build-up of inflation pressures in recent quarters may ease somewhat over coming months, an eventuality that would not sit well with the ECB.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). Released by Markit, national data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 89 percent of Eurozone manufacturing activity.

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 ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, 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.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.