DE: PMI Manufacturing Index

Tue Apr 03 02:55:00 CDT 2018

Consensus Actual Previous
Level 58.4 58.2 60.6

At 58.2, the final March manufacturing PMI was 0.2 points weaker than its flash estimate and some 2.4 points short of its final level in February. Although still indicative of a strong period for sector activity, last month's outturn was the lowest since July 2017 and suggests that output growth has decelerated for a third successive month.

In fact, the rate of expansion of production dropped to its weakest mark since December 2016 reflecting a loss of momentum in all of the main industrial groupings. More importantly, the increase in new orders was the smallest in sixteen months, in part reflecting a reduced advance in exports. Capacity pressures were still firm enough to ensure another solid increase in employment but the rate of job creation was the softest in seven months and optimism towards the year ahead hit its lowest level in a year-and-a-half.

Meantime, input cost inflation remained elevated but still declined to a 5-month trough. However, factory gate inflation was again firm, registering a rate close to the highest seen in the survey's 22-year history.

There are at least tentative signs that German manufacturing is now beginning to struggle in the face of rising costs and lost competitiveness. The PMI's forward-looking indicators remain positive enough but there is increasing reason for expecting a deceleration in sector activity this quarter.

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 500 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). The data are released 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 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.