Euro Area PMI Data Weak, Stocks Decline Sharply

Flash PMI Disappointment
Markit released its euro area composite Flash PMI and the Flash PMIs for the ‘core’ countries Germany and France on Tuesday. The data once again showed that economic growth in Europe is not much to write home about. Germany’s data look superficially good, but there is a widening gulf between manufacturing and service sector data, with the former weakening markedly.
The euro area composite output index fell to a 9 month low, the manufacturing PMI to a 14 month low – at 50.5 it remains barely in positive territory. Note in this context that in spite of the popular myth that manufacturing is only an insignificant part of the economy, it is actually its largest and most important part. In GDP accounting, almost the entire production structure is ignored (only investment in fixed capital assets is considered). And yet, if one looks at industry gross output tables, it becomes clear that this ignored portion of the economy actually represents the bulk of economic activity. Properly considered, consumer spending amounts only to about 35%-40% of economic activity, not 70% as is generally assumed. In short, manufacturing PMI data are actually a rather important gauge of an economy’s health.
France’s PMIs remain in contraction, even if it is mild at this point. However, it is not surprising that French unemployment remains near multi-year highs and that the government consistently fails to meet its budget deficit targets.

Euro area, Markit composite PMI and GDP growth

This post was published at Acting-Man on September 24, 2014.