FR: PMI Composite FLASH

Wed May 23 02:00:00 CDT 2018

Consensus Actual Previous
Manufacturing - Level 53.9 55.1 53.4
Services - Level 57.4 54.3 57.4
Composite - Level 54.5 56.9

Business activity looks to have decelerated surprisingly sharply in May. The flash composite output index weighed in at just 54.5, down a sizeable 2.4 points versus its final April reading and a 16-month low.

The headline deterioration was wholly attributable to services where the flash PMI dropped more than 3 points from its final April print to 54.3, also its weakest reading in sixteen months. By contrast, there was better news on manufacturing where the flash index gained more than a point to 55.1, a 3-month high.

The divergence in the sector PMIs was reflected in new orders where a drop in aggregate growth to a 17-month trough masked a modest pick-up in manufacturing. The same sector also saw a larger increase in output (55.5 after 54.8). However, both areas recorded a smaller rise in backlogs and a reduced gain in headcount. Even so, business optimism remained firm and services were more bullish than manufacturers.

Meantime, input cost inflation accelerated to a 3-month high but with the output price rate broadly stable and much less marked, the squeeze on profit margins remained intact.

The May report is far from being all bad but the disappointing headline data and slowing orders warn that second quarter GDP growth is unlikely to reverse much, if any, of its first quarter deceleration.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 750 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.