As for the PMI, it indicates the prevailing direction of economic trends stated in the manufacturing and service sectors. On a scale of 100, PMI over 50 indicates an economic expansion whereas below 50 indicates contraction. Reading of 50 implies no change.

As for the definition, PMI is an index of the winning direction of the economic trends. It aims to provide information about business conditions to company directors, analysts, and purchasing managers.

In accordance with the Statistics and Economic Analysis Centre of Iran Chamber of Commerce, industries, Mines, and Agriculture, the first fiscal month which started in the month of March 21 usually sees a decline in the economic activity every year as it starts with the Iranian New Year holidays. This is because businesses only have 15 working days.

Considering the shortage of the working capital along with the decline in the purchasing power. All this has led to a decline in economic activities.

Apart from all this, the geopolitical issues include the nuclear deal, the price of the dollar against the rial, a decline in demand, and a rise in raw materials. All these factors have given rise to confusion among the business owners as well as the producers, giving them a great amount of difficulty as to what to plan ahead and what can they expect to look forward.

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The data went against expectations of analysts of a decline.

The good performance was the result of a uptick in manufacturing. The manufacturing sector PMI reached a six-year high in September. The service sector PMI has also shown improvement. Overall, it leaves us with a lot of promise of growth in Q3. If the economy stays on course, the Euro area could record a healthy growth this year.

This data comes on the back of the announcement of improved wage growth in Q2 and a high level of consumer confidence.
According to the three research institutes ifo (Munich), KOF (Zurich) and ISTAT (Rome), the euro area’s economy continues to grow strongly. Growth of 0.6 percent is expected in the third and fourth quarters of 2017 respectively, following on from 0.6 percent growth in the second quarter. Growth is expected to slow down marginally to 0.5 percent only in the first quarter of 2018.

These forecasts point to an annual growth rate of 2.3 percent in 2017. According to these institutes, the main driver behind recent developments is investments, which are benefitting from low interest rates and better credit conditions.

Household consumption, which is rising by 0.4 percent per quarter, is also a driver thanks to higher disposable income levels and a favourable labour market.
Positive developments in the world economy will boost external demand, even if the latter may be slightly hampered by the loss of competitiveness accompanying the euro’s appreciation.

Consumer prices rose in the second quarter by 1.5 percent compared to the same period of the previous year. This figure will edge downwards to 1.4 percent in the third and fourth quarters and will drop further to 1.1 percent in the first quarter 2018. This is primarily due to a base effect in energy prices, which will be significantly below the level seen during the same period this year. That applies under the assumption that the price of Brent oil remains at $51.70 per barrel and the exchange rate will be at $1.18 per euro.

The risks of the forecast include a deterioration in the USA’s growth outlook, which could arise from further disappointments related to the Trump government’s future economic policy. Tensions between the USA and North Korea are also fueling uncertainty.

Other risks for the euro area include the appreciation of its currency, as well as the high level of non-performing loans on the balance sheets of banks in some EU member states.

Also read:
Low interest, better credit conditions driving Euro area
Euro area unemployment rate stabilises, but still high

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London, May 7: UK construction companies continued to record strong output rises during April for the 12th straight month but at their slowest pace since October, with all three broad categories of activity registering robust growth, independent data released late last week showed.

The CIPS UK Construction Purchasing Managers’ Index or PMI, a measure of the country’s house building sector prepared by economy tracker Markit for the Chartered Institute of Purchasing and Supplies, said despite the overall rate of sectoral expansion, it had eased since March and was the least marked for six months.

This was highlighted by the seasonally adjusted PMI dipping from 62.5 to 60.8 in April, Markit said. The latest reading was nonetheless much higher than the 50.0 no-change threshold and well above the long-run survey average of 54.3.

It was also beyond industry forecasts, which some analysts had pegged lower at 62. A survey of 17 economists by Bloomberg News had predicted the PMI to fall to 62.2.

Two factors seemed to be fuelling the current stretch of construction sector expansion – the wettest winter in 250 years necessitating new building and repair work, and a general economic wellbeing. For instance, the first quarter saw a growth of 0.8 percent, data from the Office of National Statistics showed.

This, however, was a tad lower than that forecast, primarily because of contraction in mining and production activities.

Tim Moore, Senior Economist at Markit and author of the CIPS survey report, noted in his summation that construction growth has started to moderate from the rapid pace seen over the winter. “But strong rises in new work and payroll numbers provide ample optimism that output will expand strongly over the course of 2014,” Moore added.

Similar views were put forward by Howard Archer, chief UK and European economist at IHS Global Insight. British broadcaster BBC quoted him as saying that while construction industry growth eased in April, the growth figure was still “very strong” and that the sector looked “well positioned for much improved expansion in the second quarter”

STRONG PERFORMANCE

Higher levels of construction output have now been recorded for 12 months running. Residential construction was the best performing broad area of activity, and the rate of expansion in April remained one of the fastest seen over the past 10 years.

Moreover, the current 15-month period of continuous house building growth is the longest since 2006-07. Commercial activity increased sharply in April, while growth of civil engineering activity eased markedly and was the slowest since September 2013.

Survey respondents noted a range of positive influences on new business volumes, particularly increased numbers of new housing starts, higher levels of public sector infrastructure spending and improving underlying economic conditions.

“The latest survey pointed to a steep and accelerated rise in new business received by UK construction companies, with the pace of expansion the fastest since January,” Markit said.

CIPS Chief Executive David Noble said while the rate of growth slowed slightly in April, the construction sector is still experiencing a remarkably strong and consistent period of expansion.

“House building was again the leading light in April, with growth now running for the longest continuous period since 2006-2007. This was further supported by a solid expansion in commercial activity.”

But some firms noted a moderation in the boost to civil engineering activity from work related to flood relief.  Noble noted that alongside the upsurge, civil engineering showed some signs of moderation, as companies looked for new work to replace flood relief activity.

“Reflecting the fast pace of growth filtering through the supply chain, vendor performance in April continued to deteriorate, typified by shortages of capacity, low stocks and worsening lead times,” he said. “Beyond this, the easing of cost inflation this month was acknowledged to have brought some relief to the industry.”

However, housing shortage continued despite the growth, forcing house prices to jump by 10.9 percent year-on-year in April, marking the first time since April 2010 that annual growth has reached double figures, according to mutual financial institution Nationwide.

“Improving house building is particularly welcome news given that a shortage of properties is a major factor repeatedly putting upward pressure on UK house prices,” said Archer of IHS Global Insight.

“Nevertheless, the fact remains that there needs to be extended, very strong house building to make significant inroads into the problem.”

DOMINO EFFECT

On the positive side, April data pointed to a steep rise in construction sector employment, which extended the current period of job creation to 11 months.

Increased payroll numbers were widely attributed to greater output requirements and confidence about the outlook for business activity.  “Positive news abounds as housing activity reached a near ten-year high and the sector as a whole benefited from the sharpest rise in new business since January this year,” said Noble of CIPS.

This, alongside improving economic conditions, continued to drive strong job creation, giving further cause for optimism about the future.

Markit said the latest survey indicated that construction firms’ confidence regarding the business outlook was only slightly lower than the seven-year high posted in March. “Around ten times as many construction companies (56 percent) anticipate a rise in output as those that forecast a fall over the next 12 months (5 percent),” it said.

According to it, the strong demand for inputs was highlighted by a further sharp increase in purchasing activity among construction firms. Higher levels of input buying have been recorded in each month since June 2013.

Meanwhile, Markit said, input cost inflation eased slightly to a three-month low in April. Survey respondents widely cited higher prices for raw materials such as bricks and timber.

What also helped were better economic conditions, a surge in house building, improved access to finance and greater investment spending are all important tailwinds for UK construction growth this year, said Markit economist Moore.

“April’s survey indicated that residential building was the fastest growing area of UK construction activity, with the latest expansion correlating with at least 45,000 new housing starts per quarter,” Moore added.

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25th August 2013

European shares picked up steam after a period of calm activity on strong data forecasts from Europe and China. The Markit Eurozone PMI Composite Output Index showed the largest monthly increase in business activity for more than two years since August 2011. The PMI rose for the fifth consecutive time to reach 51.7, the highest since June 2011. The above 50 readings signal two consecutive months of rising output, in contrast to declining business levels over the last 17 months.

The Purchasing Manager Index is a key parameter to gauge the business and economic conditions in any economy, the most common PMI surveys are the manufacturing and services PMI, which are released for the U.S. and the European countries.

How is the index calculated?

The PMI comprises of five variables which includes new orders, production, employment, finished inventory and supplier delivery time. Survey responses are tallied based on the direction of change from the prior month for each variable, an increase for the month will count as 1, if there is no change or the same as last calculated it will count as 0.5, and a decrease for the current month will be calculated as zero. So if 60 out of 100 reported an increase, 20 reported no change and if there were 20 new orders, then new orders would equal 70 points (60×1+0.5×20). After calculating the points for each variable, the PMI is constructed equally by assigning an equal weightage based on the variable’s points: new orders (0.2), production ( 0.2), employment ( 0.2), delivery point ( 0.2) and finished inventory (0.2). The sum of these values would equal the PMI and this procedure is called “diffusion index”.

Of the underlying variables New Orders and Supplier Delivery Time are leading indicators, production is a coincidental indicator, finished inventory and employment are lagged indicators. The composite PMI of these five variables forecasts the earlier glimpse of the manufacturing sector’s direction. A reading of more than 50.0 indicates improvement in the manufacturing sector or service sector and a reading of below 50.0 suggests deterioration in either the manufacturing or services sector. A PMI score of more than 42.0 will show that a nation’s GDP in good stead and in the path of economic progress, conversely, a PMI score of less than 42.0 means the country is headed to recession, investors use the PMI as an indicator to measure the growth or decline of a country’s GDP

Investors use these surveys as leading indicators of economic health, given their insight into employment, production, inventory and pricing. The Fed uses the PMI Index extensively; this is evident from the minutes published by the Federal Reserve.

Who publishes the PMI ?

The Purchasing Managers Index is published in different countries by companies, for example: at the beginning of each month Markit, ISM, RBC, J P Morgan and several other data gathering institutions publish the latest local readings of the PMI for various countries around the world. In general, most investors trust the two most popular sources the ISM and Markit for PMI data.

Markit

With over 3,000 employees, Markit is a leading global financial information services company.  Markit collects data from more than 20,000 companies across more than 30 countries every month, the responses are collated, checked and aggregated to provide a vast quantity of data covering the manufacturing, services, retail and construction sectors. The company provides reliable factual data on actual business conditions rather than opinion or confidence based measurements, it is the most comprehensive global economic survey available to professional investors.

ISM

The Institute for Supply Management (ISM) manufacturing release is published on the first business day of every month and the non manufacturing release is released on the third business day of the month. The index includes prices paid for all purchases including import purchases and purchases for food and energy excluding crude oil. The production index compares current month production with the earlier month. The ISM which is a non profit group has more than 40,000 members engaged in supply management and purchasing professions.

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