FR: PMI Manufacturing Final

Highlights

Private sector manufacturing was at its highest level in early four years in January, outpacing both the flash reading of 51.0 and December's level of 50.7, with a final result of 51.2.

Output levels increased for the first time since May, which purchasing activity was also on the rise. Further positive developments came from increases in inventories. These developments led to additional hiring, with the upshot that business confidence improved.

Improved market conditions led to companies building their inventories, which is a positive sign for future production. Still, geopolitical and domestic issues are weighing on businesses along with dampened demand from abroad, according to respondents.

Among the cracks are a decrease in new orders, and continued discounting by manufacturers despite increased production costs. So, it remains that firms are opting to keep production running while optimistic that business will pick up.

For now, the uncertainty around US tariffs has seemingly calmed somewhat and companies are focusing on their core businesses. Perhaps helping sentiment was the trade deal the EU signed with India recently. To be sure, that won't have an immediate effect on production, but does lend companies some guidance that new markets are being explored and potentially realigning away from dependence on the US.

Market Consensus Before Announcement

Index expected unrevised in the January final from the January flash at 51.0 and up from 50.7 in December.

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.

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