FR: PMI Composite FLASH

Fri Jun 22 02:00:00 CDT 2018

Consensus Actual Previous
Manufacturing - Level 54.1 53.1 55.1
Services - Level 54.3 56.4 54.3
Composite - Level 55.6 54.5

The flash report showed a surprisingly sharp acceleration in business activity in June. At 55.6, the composite output index was provisionally 1.4 points above its final May print and comfortably stronger than market expectations.

However, the headline bounce was wholly attributable to services where the flash PMI climbed more than 2 points from its final June mark to 56.4. This more than offset a 1.3 point decline in its manufacturing counterpart to 53.1, a 16-month low.

In fact, manufacturing output expanded at its slowest pace in more than a year-and-a-half and new orders posted their smallest gain since February last year. By contrast, services saw a tidy pick-up in growth of new business. Still, both sectors recorded solid increases in backlogs and headcount. Meantime, further issues with capacity were reflected in another marked rise in delivery times. Business sentiment towards the year ahead remained optimistic but still slipped to a 7-month low.

Input costs rose in both sectors but most noticeably in manufacturing and the same was true of output prices where the average increase was the steepest since January.

Today's report is a very mixed bag and, on balance, suggests quarterly GDP growth should be quite sluggish at around the 0.3 percent mark. This would be just a tick higher than the disappointing first quarter outturn. That said, at least the buoyancy of orders bodes well for the third quarter and continued employment gains are good news for household spending.

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.