Final Purchasing Managers’ Index data confirmed that the Eurozone manufacturing sector started 2010 on a positive footing. The recoveries in production and new orders, which began at the end of the third quarter last year, gained further traction in January. Rates of expansion for both variables were also faster than those signaled by their respective flash estimates.
The headline final Eurozone Manufacturing PMI – a composite index based on measures of production, orders, employment, inventories and supplier performance – posted 52.4 in January, its highest reading for two years. The index value was above both its earlier flash estimate of 52.0 and the final reading of 51.6 posted in December. The level of the PMI has risen in each month since hitting a record low last February and has now remained above the neutral 50.0 mark for four consecutive months.
Manufacturing production expanded for the sixth straight month in January, with the rate of increase the quickest since August 2007. However, noticeable disparities in performance were still apparent between national manufacturing economies. Countries reporting an increase in output (Germany, France, Italy, Austria and the Netherlands) all saw stronger rates of expansion than in December. In contrast, Spain, Ireland and Greece all recorded lower output and faster rates of contraction.
Growth hit a near 9.5-year high in France, was the fastest for around 2.5 years in Germany, Italy and the Netherlands and the quickest for 24 months in Austria. Sector data indicated that capital and intermediate goods producers fared best in January, with output in both sectors rising at the fastest rates since 2007. Although consumer goods production also increased, growth was slower than in the previous month.
The level of new work received rose for the sixth month running in January. Growth of new orders was the strongest since June 2007 and faster than the earlier flash estimate. The gain in the index between its flash and final releases was the greatest since flash PMI data were first compiled at the start of 2006. New export orders rose at an above flash estimate pace that was the quickest since August 2007.
Germany (three-year high) posted the sharpest growth of total new orders, followed by France (38-month high) and the Netherlands (fastest for 28 months). Spain, Greece and Ireland continued to report lower intakes of new work, with the pace of contraction the fastest for eight and nine months in Spain and Greece, respectively. Sector data signaled that the strongest gains in total new work and new export orders were both recorded at producers of investment products.
Job losses continued to mount at the start of 2010. Manufacturing employment declined for the 20th successive month and at a faster pace than in December (but in line with the earlier flash estimate). All of the nations covered by the survey reported reductions to staffing levels, with the sharpest job cuts in Germany and Spain.
January data pointed to a further increase in cost inflationary pressures, as purchase prices rose at the fastest rate for 16 months. The greatest cost increases were signaled in the intermediate and investment goods sectors. Companies linked higher purchase prices to the increased cost of commodities (energy and metals) and supply chain factors. This was highlighted by a further deterioration in average vendor performance, as low stock levels at suppliers continued to result in delivery delays. There were also signs that pressure on manufacturing operating capacity and stocks may also be increasing, as backlogs of work rose at the fastest pace since July 2007.
Strong competition prevented manufacturers from passing on higher costs to their clients in January. Average selling prices fell for the 15th month in a row, although the rate of deflation was the joint-weakest during that period and slower than the earlier flash estimate. Reductions were reported by all of the nations covered by the survey, with the sharpest decreases signaled in Spain and Ireland.
Holdings of raw materials and finished products continued to fall in January, despite further increases in output and purchasing activity. Input buying was raised to the greatest extent since February 2008. Rates of decrease for input inventories and stocks of finished goods were the slowest for 15 and 10 months, respectively, and both were slightly weaker than the earlier flash estimates. Inventory depletion was most notable in the investment goods sector.
Commenting on the PMI data, Markit senior economist Rob Dobson said: “The January final PMI readings confirm that the Eurozone manufacturing sector has built on its positive end to last year, with growth of output and new orders the fastest since mid-2007 and above the earlier flash estimates. However, the recovery is becoming two-track, with Spain and Greece in particular falling further into recession when growth in most of the other nations, led by France and Germany, is accelerating. Manufacturers are also continuing to focus on reducing headcounts and lowering stocks despite gains in output. This suggests that they retain a cautious outlook, especially while sales are still being supported by price discounting.”