| Consensus | Actual | Previous | |
|---|---|---|---|
| Index | 42.6 | 42.8 | 44.2 |
Highlights
The French manufacturing sector started the fourth quarter with a whimper, as the sector PMI slumped to 42.8, the lowest level since May of 2020.
Despite the substantial deterioration from the unrevised 44.2 recorded in September, the final October reading was slightly stronger than the flash estimate of 42.6.
New orders accounted for much of the weakness, suffering a contraction exceeded only in the depths of the Covid pandemic and during the financial crisis of 2008-09, according to S&P Global. Overseas clients reduced their orders by the biggest margin since May of 2020, with S&P noting reduced appetite from fellow European firms, particularly those in Germany.
Output volumes were also weak, extending a streak lasting nearly a year and a half, with the October contraction the steepest in 41 months. Crucially, manufacturing firms reduced headcount more rapidly than at any time since May of 2020.
Operating costs fell for the sixth straight month in October, largely due to supplier discounts and reduced raw materials prices, although firms chose to discount output prices only marginally.
The grim start to the fourth quarter follows a 0.3 percent fall in manufacturing activity in the previous three months, according to gross domestic product data released on Tuesday. GDP managed a 0.1 percent increase, a marked deterioration from the 0.6 percent expansion in the second quarter.
That slowdown was largely expected, and the 0.1 percent decline in German GDP reported on Monday was actually stronger than the consensus forecast and may not cause too many sleepless nights amongst European rate setters.
But indications of slack in the European labour market may raise eyebrows at the ECB, as officials have repeatedly pointed to record levels of unemployment in the bloc and the resulting risk of wage pressures as key reasons for the Bank's unprecedented tightening cycle.
After a sharp reduction in headline inflation in October, investors are betting that the ECB's rate hikes have likely come to an end. But if economic weakness continues, the narrative may shift to discussions of when the Bank might begin cutting rates, despite ECB President Christine Lagarde's insistence last week that the governing council has yet to broach that topic.
The latest data put the French RPI at 4 and the RPI-P at 15, meaning that overall economic activity is outperforming market expectations, at least on the latter measure.
Despite the substantial deterioration from the unrevised 44.2 recorded in September, the final October reading was slightly stronger than the flash estimate of 42.6.
New orders accounted for much of the weakness, suffering a contraction exceeded only in the depths of the Covid pandemic and during the financial crisis of 2008-09, according to S&P Global. Overseas clients reduced their orders by the biggest margin since May of 2020, with S&P noting reduced appetite from fellow European firms, particularly those in Germany.
Output volumes were also weak, extending a streak lasting nearly a year and a half, with the October contraction the steepest in 41 months. Crucially, manufacturing firms reduced headcount more rapidly than at any time since May of 2020.
Operating costs fell for the sixth straight month in October, largely due to supplier discounts and reduced raw materials prices, although firms chose to discount output prices only marginally.
The grim start to the fourth quarter follows a 0.3 percent fall in manufacturing activity in the previous three months, according to gross domestic product data released on Tuesday. GDP managed a 0.1 percent increase, a marked deterioration from the 0.6 percent expansion in the second quarter.
That slowdown was largely expected, and the 0.1 percent decline in German GDP reported on Monday was actually stronger than the consensus forecast and may not cause too many sleepless nights amongst European rate setters.
But indications of slack in the European labour market may raise eyebrows at the ECB, as officials have repeatedly pointed to record levels of unemployment in the bloc and the resulting risk of wage pressures as key reasons for the Bank's unprecedented tightening cycle.
After a sharp reduction in headline inflation in October, investors are betting that the ECB's rate hikes have likely come to an end. But if economic weakness continues, the narrative may shift to discussions of when the Bank might begin cutting rates, despite ECB President Christine Lagarde's insistence last week that the governing council has yet to broach that topic.
The latest data put the French RPI at 4 and the RPI-P at 15, meaning that overall economic activity is outperforming market expectations, at least on the latter measure.
Market Consensus Before Announcement
No revision is expected leaving the headline index at 42.6, down from September's final 44.2.
Definition
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 400 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). The data are released by S&P Global.
Description
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 S&P Global 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 S&P Global 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.
The S&P Global 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.
