October saw the rate of expansion in Eurozone manufacturing production accelerate for the first time in three months. Output growth improved from September’s 11-month low, reflecting faster increases in the majority of the nations covered. However, national disparities remained, with the rates of expansion of the big-three nations and Austria much stronger than those seen elsewhere.
At 54.6 in October, up from September’s eight-month low of 53.7, the Markit Final Eurozone Manufacturing Purchasing Managers’ Index (PMI) was above its earlier flash estimate of 54.1 and also up on the average for the current 13-month period of improvement (54.3).
PMIs signaled expansion in almost all of the nations covered. The only exception was Greece, where the rate of deterioration accelerated. Readings for Spain and Ireland rose back above the neutral 50.0 mark after dipping below in September.
Manufacturing output and new orders rose for the 15th successive month in October. Rates of increase improved from the lows seen in September and were well above the earlier flash estimates. The investment and intermediate goods sectors continued to lead the recovery, whereas the consumer sector remained a brake on growth.
Rates of output expansion improved in Germany, Italy, Spain, the Netherlands, Austria and Ireland. Although growth slowed sharply in France, it stayed above the euro area average. Greek manufacturing production fell at the fastest pace since June.
Meanwhile, France and Germany led the growth in total new orders in October, seeing by far the fastest rates of increase. New order inflows improved at the strongest rate in six months in France, while growth picked up sharply in Germany from September’s 14-month low. New work rose in Spain, the Netherlands and Ireland – following declines one month earlier – with the turnaround seen in the Netherlands especially marked (mainly due to a much stronger export performance). Total new orders continued to fall at a substantial pace in Greece.
Part of the improved flow of new orders reflected stronger gains in new export business in October. Growth of new export orders was the fastest in three months. Rates of increase accelerated in each of the big-four economies and also in the Netherlands and Ireland (following a slight drop in Ireland during September). The level of new export orders received in Greece fell at a slower pace.
Sector data suggested that new orders and new export orders both rose at the sharpest rates in the investment goods sector, possibly reflecting the relative strength of the corporate sector compared to households. In contrast, consumer goods new orders failed to rise for the first time in 11 months, accompanied by a decline in new export orders.
Manufacturing employment rose for the sixth month running in October, with the rate of jobs growth the fastest since March 2008. However, job creation was uneven across the national manufacturing sectors. Growth of employment was mainly centered on Germany, the Netherlands and Austria, while Spain saw a slight increase for the first time since August 2007. The French and Italian manufacturing labor markets moved to, or close to, stabilization, but marked jobs losses continued in Greece.
October saw input price inflation accelerate to a four-month high, with the rate of increase above the earlier flash estimate. Cost inflation accelerated in Italy, France, Austria, Ireland, the Netherlands and Greece. Companies reported widespread price increases for a number of commodities. Supply chain factors also drove costs higher, as exhibited by a further marked lengthening of supplier lead times.
Meanwhile, strong competition prevented firms from fully passing on higher costs to their clients in October. Average charges rose for the seventh month running. Although the rate of output price inflation was above the average for that period, it was well below that signaled for costs. Selling prices rose in Germany, Italy, France, the Netherlands and Austria, but fell in Spain, Ireland and Greece.
Holdings of raw materials and finished goods both fell in October. The fall in the latter meant that the new orders-to-finished goods inventory ratio (which tends to lead trends in production) rose slightly from September’s 15-month low.
Chris Williamson, chief economist at Markit, said: “An improvement in the PMI for the first time in three months provides much needed reassurance that manufacturing remains an important driver of the euro area recovery. The final manufacturing PMI data came in stronger than the earlier flash estimate, suggesting that growth picked up at the start of the fourth quarter, boosted by rising export sales. However, it is clear that the recovery has moved down a gear. The pace of expansion has eased markedly from the surging near double-digit annual pace seen earlier in the year to a more modest 3 to 4 percent. Despite the overall improvement, national divergences will continue to raise tensions for policymaking. Although Greece was the only country to see manufacturing output decline, production continued to barely rise in the Netherlands, Ireland and Spain, contrasting with strong growth in Germany, France and Italy.”
