Eurozone manufacturing PMI posts four-month low in June

At 55.6 in June, down from 55.8 in May, the Markit Final Eurozone Manufacturing Purchasing Managers’ Index was confirmed at its earlier flash estimate. The PMI fell to a four-month low and was down further from April’s near four-year high, but was still well above the long-run average of 51.6. The PMI has now been above the neutral 50.0 mark, signaling improving business conditions, for nine months in a row.

Manufacturing production, new orders and new export orders all rose for the 11th successive month in June. Growth of output remained marked and was slightly faster than in May, with the average rate during the second quarter as a whole the quickest since Q3 2006. However, production growth was still well below April’s 10-year high.

Germany reported the strongest rate of expansion in output of the big-four euro area economies in June by some margin (helping propel buoyant growth in neighboring Austria), followed by France and Italy. Only subdued expansion was seen in Spain, where the pace slowed for the second month in a row, and growth also weakened further in the Netherlands and Ireland.

Greece again suffered the worst performance of all countries surveyed, with its rate of contraction accelerating to the steepest for 14 months, reaching a pace close to the survey record declines seen at the start of 2009.

For the region as a whole, further growth of production was seen for the consumer, intermediate and investment goods sectors in June. The strongest expansions were at capital and intermediate goods producers. Growth in the consumer goods sector was modest in comparison.

Despite the slight uptick in growth of output in June, forward-looking indicators from the survey provided evidence that growth of output may have peaked in April.

In particular, the Eurozone manufacturing new orders-to-inventory ratio remained below recent peaks, to suggest that output growth may weaken further from the strong rates seen during the first half of the year, due in part to a further slowing in new orders growth in June.

Having eased throughout the second quarter, the rate of increase in new orders was the weakest for six months. Germany recorded the fastest growth of new work among the big-four nations, but Italy was the only one to report a faster rate of increase than a month earlier. New work received continued to fall sharply in Greece, and other peripheral countries such as Spain and Ireland saw new order growth deteriorate to only modest rates.

Manufacturers also reported that the rate of growth in new export orders, which had been running at a 10-year high in recent months, eased to a four-month low in June. Most countries saw New Export Orders Indices turn down during the month. Austria, Germany and France saw the strongest growth of exports, but Greece reported a further marked decline and Spain saw only a slight gain in export sales during the month.

Staffing levels rose for the second month running, but the pace was only very modest as improvements in Germany, the Netherlands and Austria were offset by job cuts in other countries. The rate of job losses in Italy was only slight and the weakest since August 2008, but employment fell at the fastest rates for five and four months respectively in France and Spain. A return to job shedding was also reported in Ireland.

Average suppliers’ delivery times lengthened again, with the extent of the increase broadly similar to April’s near 10-year record. This enabled vendors to push up the prices of a number of raw materials, leading manufacturers’ input costs to rise sharply again. Although the rate of purchase price inflation eased from May’s near survey-record high, it was still well above the series average. Input cost increases were sharpest in France and Italy.

Prices charged also rose again in June, with Greece the only nation covered not to report higher selling prices. The steepest increases were reported by Germany, the Netherlands and France.

Chris Williamson, chief economist at Markit, said: “Recent official data for the euro area show the fastest annual rate of growth in manufacturing output for at least 20 years, confirming the buoyant message from the PMI data earlier in the year. The latest PMI numbers add to this remarkable performance of manufacturing, which we estimate has now recovered some 40 percent of the output lost in the recession, but also suggest that the rate of increase has begun to cool. Of greatest concern is a slowing in growth of new orders to the weakest so far this year, as manufacturers face tougher trading conditions arising from the shift in policy from stimulus to austerity, the region’s sovereign debt crisis and a slowing in growth of global trade flows. Even German exporters – the driving force of the region’s recovery to date – have not been immune, reporting slower growth of new export orders for the third month running. However, some of the biggest worries still lie with the periphery, with Greece contracting at an increased pace and growth slowing in Spain and Ireland. The second quarter most likely represents a peaking in the rate of expansion of manufacturing output, as growth slows in coming months as stimulus-driven tailwinds are replaced by mounting headwinds.”