DE: PMI Composite FLASH

Wed May 23 02:30:00 CDT 2018

Consensus Actual Previous
Manufacturing - Level 57.8 56.8 58.1
Services - Level 53.0 52.1 54.1
Composite - Level 53.1 55.3

The composite output index was provisionally estimated at just 53.1 in May, 1.5 points short of April's final outturn and its weakest print in twenty months.

Moreover, the overall deceleration in business activity reflected slower growth in both manufacturing and services. The flash PMI for the former fell a surprisingly sharp 1.3 points versus its final April mark to 56.8, still respectable enough but also a 15-month trough. Its services counterpart was again markedly softer at only 52.1, a 0.9 point decline and its worst outturn in twenty months.

Ominously, aggregate new business saw its smallest rise in almost three years, mainly due to a fourth successive cooling in services. However, employment continued to expand at a robust rate, albeit by less than at any time in the last seventeen months, and backlogs were up again, notably in manufacturing. Even so, business confidence worsened in both sectors and, overall, declined to its lowest level in a year-and-a-half.

Meanwhile, inflation pressures eased a little. Although input cost inflation was essentially unchanged from April, output prices posted a slightly smaller increase due to a fall in factory gate inflation. That said, the rise in service sector charges was the steepest since February.

Today's survey results are disappointingly soft. Anecdotal evidence suggests that the timing of public holidays may have had a temporary negative impact but the overall impression is one of slowing economic activity. Quarterly GDP growth was provisionally a modest 0.3 percent at the start of the year; this report holds out little promise of anything any better in the current quarter. 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 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.