EMU: PMI Manufacturing Index

Wed May 02 03:00:00 CDT 2018

Consensus Actual Previous
Level 56.0 56.2 56.6

The flash PMI estimate was revised just a couple of ticks higher to 56.2 in the final data for April. This confirms a slightly reduced pace of expansion versus March (final 56.6) but leaves a still relatively healthy rate.

As previously indicated, the latest headline decline was attributable to smaller gains in new orders (domestic and exports) and employment. However, production expanded at a slightly faster rate. The rise in new business was the weakest since November 2016 and the increase in headcount the least significant since last August. That said, expanding backlogs suggest that supply constraints may have hampered output as the lengthening in delivery times was one of longest on record. Even so, business confidence was also down, touching a 16-month low.

Inflation developments were mixed with significant gains in both input costs and factory prices leaving a lower rate of inflation for the former but a higher rate for the latter.

Regionally, the best performer was the Netherlands (60.7) ahead of Germany (58.1) and Austria (58.0). Ireland (55.3) and Spain (54.4) were some way behind but still above France (53.8), Italy (53.5) and Greece (52.9).

The final report continues to point to some underlying cooling in Eurozone manufacturing activity in April. Current PMI levels are still historically robust but without some improvement in coming months, any boost from the sector to HICP inflation is likely to emerge only quite slowly.

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.