Great Graphic: Euro Zone PMI and GDP

This Great Graphic comes from Thomson Reuters Macroscope blog by Andy Bruce.  It shows how well the euro area composite PMI from Markit tracks the region's GDP.   It does a reasonably good job.  

However, the PMI typically has greater amplitude than GDP.  Both on the upside and downside, the composite PMI tends to be greater than GDP.  

The blog quotes the chief economist at Markit saying that he expects GDP to catch-up to the weakness anticipated by the PMI surveys.  It could.  The recent data has been poor and even the German locomotive has slowed considerably.  Markit says the results are consistent with a 0.6% quarter-over-quarter contraction in GDP.  The consensus Reuters found in last week's survey (35 people polled) was for -0.2%, with the most bearish at -0.5%.  

The composite euro zone PMI averaged 46.2 in Q3 and 46.4 in Q2.  The euro area economy contracted 0.2% in Q2.  Markit had projected a 0.6% contraction in Q2.  Nevertheless, Bruce argues that Markit has done a better job than most economists over the last 12 years.   

I don't have the data that can test that claim, but there is a reason why market participants use a consensus forecasts.  Moreover, the first official estimate of Q3 euro area GDP will not be released until mid-November.  Economists will have more real sector data, in addition to the PMI surveys, as input into their own forecasts.  Personally, I think the chart can be read to illustrate that the survey (sentiment) tends to exaggerate both the good times and the bad.