EMU: PMI Composite FLASH

Fri Jun 22 03:00:00 CDT 2018

Consensus Actual Previous
Composite - Level 53.9 54.8 54.1
Manufacturing - Level 55.1 55.0 55.5
Services - Level 53.6 55.0 53.9

In contrast to expectations, economic growth seems to have picked up a little steam at the end of the second quarter. At 54.8 the flash composite output index was 0.7 points above its final May outturn and comfortably stronger than the market consensus. Even so, this was still the second weakest reading in the last seventeen months.

in fact, the overall acceleration was wholly attributable to services where the flash PMI rose 1.2 points versus its final May print to 55.0, its best mark in four months. By contrast, manufacturing ominously continued to slow and at also 55.0, its flash PMI was 0.5 points short of its final mid-quarter mark and an 18-month low.

Manufacturing output saw its slowest growth since November 2016 and while services posted their largest increase in new orders since February, manufacturing recorded their weakest rate in twenty-two months. However, backlogs rose modestly in both sectors and a solid advance in employment was also broad-based. Even so, overall business expectations deteriorated to their weakest point in nineteen months.

Inflation developments were positive. Aggregate input costs rose at their fastest rate in five months and output prices also accelerated, albeit with stronger gains in services offsetting smaller rises in manufacturing.

The preliminary June findings at least show some overall improvement versus May. However, the current level of the composite output index still points to a marked deceleration in Eurozone economic growth from 2017 and was probably biased up by a rebound from an unusually large number of holidays last month. Quarterly GDP growth looks on course for around the 0.5 percent mark, up a tick from the first quarter but declining business expectations leave a question mark hanging over the second half of the year. There is no room for complacency.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 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 survey, produced by Markit, uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

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.