The January "Flash" estimates of the Purchasing Managers' diffusion indexes for the Euro Area continued the increases that began at the end of last year. The Composite index was up 2.7 points to 50.4, the first time the index was in the expansion zone, admittedly barely so. The Manufacturing index increased 1.8 points but was still below the expansion zone. The rise in the Composite was due chiefly to the 2.2 point rise in the services index.& The diffusion indexes for the Euro area are shown in the first chart.

The Euro Area estimates are largely based on the "Flash" estimates of the Composite, Manufacturing and Service indexes for France and Germany, the only countries with complete January data.. The Composite index for France increased a bit more than one point while that in Germany rose 2.6 points between December and January. Both are now in the expansion phase of the cycle, France, barely so at 50.9 and Germany, more solidly at 54.0. In France the manufacturing index actually declined slightly in January while the service index rose 1.5 points. In Germany the manufacturing index was up 2.9 points in January and the service index up 1.8 points. The indexes for Germany and France are shown in the second and third charts

Purchasing Managers' Surveys are good indicators of trends in output. Over the last five years, the correlation between the composite index for the euro area and the quarter to quarter change in the real GDP of the Euro Area has been high, at .91, as can be seen in the fourth Chart. The chart suggests lower growth or even a decline in the fourth quarter rate of GDP growth. However, the increases in the January "Flash" Indexes suggest a more positive outlook for the first quarter of 2012.