EMU: PMI Composite Flash

Highlights

The eurozone economy remained in contraction in June, but the latest PMI data suggest that the pace of decline is gradually moderating. The composite output index improved to 49.5 from 48.5 in May, a three-month high, reflecting a slower contraction in services activity and continued, albeit modest, expansion in manufacturing production. While business activity remained below the 50-point growth threshold for a third consecutive month, the data indicate that the worst of the recent downturn may be easing.

The underlying picture, however, remains mixed. New orders fell for a fourth successive month, highlighting persistent demand weakness, although the decline was the mildest since March as manufacturing orders returned to marginal growth. Employment also edged lower, extending a six-month period without net job creation, with manufacturing job losses continuing to outweigh modest hiring in services. Encouragingly, inflationary pressures softened further, as both input costs and output prices recorded slower increases, suggesting that supply-side pressures are gradually receding. At the same time, supplier delivery delays and inventory drawdowns point to lingering geopolitical and logistical disruptions.

In essence, the eurozone appears to be navigating a fragile stabilisation phase, characterised by easing inflation and improving business sentiment but constrained by weak demand, subdued labour market conditions, and uneven performance across member states, particularly Germany's renewed weakness. These updates take the RPI to minus 5 and the RPI-P to minus 6, meaning that economic activities are now within the expectations of the eurozone economy.

Market Consensus Before Announcement

Pretty much no change is the call with the composite expected at 48.7 in the June flash versus 48.5 in the May final. Manufacturing expected in expansion again at 51.5 for the June flash versus 51.6 in the May final. Services seen at 48.4 in June flash versus 47.7 in. the May final.

Definition

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity 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 covering a range of variables including manufacturing output, employment, new orders, backlogs and prices 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 report also contains flash estimates of the manufacturing and services PMIs. The survey, produced by S&P Global 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.

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 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.

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