Good news, bad news. An economy that contracted in Q4, yet record output from manufacturing as the PMI rose to 62 against a consensus estimate of 57.9. How can we make sense of this?
The Purchasing Managers’ Index is a number derived from questionnaire responses, where the questions ask for fact and not opinion. A typical question might allow up/down/same responses – they do not ask for company sensitive numbers. Says Markit:
First, Germany leads the euro area to a jump in GDP in Q2. Then, just a month later, a sharp fall in Germany’s PMI leads a drop in the index for the eurozone as a whole. The Purchasing Managers’ Index is not, of course, GDP. It is a survey of 4,500-odd buyers in the eurozone on a number of measures. But historically the two are closely linked. So what’s going on?
Ralph offers some insights on ft.com. First, we may be seeing an expected cooling from the rapid expansion seen earlier in the year. Second, he writes:
Earlier this week, the Bundesbank warned that the pace of German economic growth had weakened “markedly”. But it ascribed the slowdown to weaker global prospects and said the recovery remained “intact”. Although German policymakers worry about the county’s exposure to a fall in demand for its export goods, evidence is growing that the recovery is broadening with increases in real wages and falling unemployment gradually feeding through into stronger consumer spending.