May's NTC Economics manufacturing survey indicated continued buoyant growth of the Eurozone manufacturing sector, with month-on-month expansion extending into a 23rd successive month. The Royal Bank of Scotland/NTC Manufacturing Purchasing Managers’ Index slipped slightly further from the highs seen last summer but, at 55.0, remained well above the no-change mark of 50.0 and also well up on the long-run series average of 52.7.
Growth of manufacturing output was recorded for a 24th consecutive month in May. Expansion was again strong and up on the long-run series average, but the rate of growth continued to moderate from the six-year high recorded last June, dipping for the eighth time in the past 12 months to the slowest since January 2006.
“May’s Eurozone PMI survey showed year-on-year expansion of industrial production easing to around 3 percent in Q2, as the strong euro and higher interest rates took some of the steam out of the recent impressive growth momentum,” said RBS chief Euro Area economist Jacques Cailloux, “Employment growth remains at a 6.5-year high and data showing slower expansion of backlogs and a less marked depletion of finished goods inventories suggests that the sustained investment by manufacturers in labor and capital is starting to bring capacity more closely into line with requirements. This is borne out by the slowest inflation of output prices in 14 months. This report reinforces our view that the Euro Area economy is on a downward trajectory which is likely to continue over the summer months, the deceleration still appears to be modest though.”
New orders posted further robust growth, although the rate of expansion continued its gradual retreat from last summer's six-year highs, slowing for the third month running to the weakest since November 2005. Growth of exports continued to lag total orders, partly reflecting manufacturers' reduced competitiveness in certain markets as a result of the current strength of the euro.
Employment rose for the 15th successive month as manufacturers sought to further expand capacity. Growth was solid and unchanged on the 6.5-year high recorded in April.
Growth of employment, combined with slightly weaker expansion of orders, enabled a greater proportion of firms to clear their backlogs of work. Volumes of outstanding business continued to rise, but the pace of growth eased for the third month running to the weakest since January 2006.
Further evidence that the sustained increase in employment has started to bring capacity more closely in to line with requirements was provided by the latest data on manufacturers' stocks of finished goods. Although registering a contraction for the 26th successive month in May, the latest decline in inventories was only marginal and the smallest in two years.
Rising demand for inputs combined with shortages in supply meant purchase prices continued to rise sharply in May. The latest increase in input prices was the 23rd in successive months and reflected reports of higher prices for a wide range of commodities – in particular metals.
Output prices increased for the 22nd successive month in May, but the pace of inflation remained well below that of costs, dipping to a 14-month low in May, reflecting competition among firms for new business.
