EMU: PMI Manufacturing Index

Fri Jun 01 03:00:00 CDT 2018

Consensus Actual Previous
Level 55.5 55.5 56.2

The final sector PMI weighed in at 55.5, matching its flash estimate and so still 0.7 points short of its final April mark and a 15-month low.

The headline decline reflected smaller gains in output, new orders and employment although all held onto respectable rates of growth. Backlogs also rose again but, similarly, at a reduced pace compared with April. Against this backdrop, business optimism regarding the year ahead declined to its weakest mark since September 2016.

Still, pressure on capacity was demonstrated in widespread delays at suppliers and input cost inflation was strong and accelerated for the first time since January. Even so, factory gate inflation eased to a 5-month low while remaining well above its historic norm.

Regionally, the best performer was the Netherlands (60.3) ahead of Austria (57.3) and Germany (56.9). Ireland (55.4) was not too far behind but France (54.4), Greece (54.2), Spain (53.4) and Italy (52.7) all lagged. Moreover, the majority of these countries recorded multi-month lows.

Eurozone manufacturing looks to have struggled somewhat last month. Growth of activity remains at a decent rate but the slowdown in output and, most worryingly, orders, does not bode well.

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.