Eurozone manufacturing expands at fastest pace since November 2006

The Markit Final Eurozone Manufacturing Purchasing Managers’ Index rose to a 40-month high of 56.6 in March, up from 54.2 in February and above the earlier flash estimate of 56.3. The PMI has now been above the 50.0 no-change mark for six successive months.

The PMI is a weighted average of new orders, production, employment, inventories and supplier performance indices.

Manufacturing production and new orders both increased for the eighth successive month in March. Rates of expansion continued to improve as well, and were the fastest since June 2006 and June 2000, respectively. In both cases, final index readings came in slightly above the earlier flash estimates. Growth of output and new orders was strongest in the capital and intermediate goods sectors. Solid expansions were also recorded in the consumer goods sector.

Meanwhile, the new orders-to-inventory ratio improved in March to a level only slightly below its record high. This suggests that firms will continue to raise production in coming months in order to satisfy fuller order books.

Germany recorded the fastest rate of expansion in output, with growth reaching a 14-year survey high. Rates of expansion also accelerated in Austria (fastest since April 2006), France, the Netherlands (43-month high) and Italy (33-month peak).

Both Spain and Ireland meanwhile returned to growth, meaning Greece was the only Eurozone country to report further reductions in output, new orders, new export orders and quantities of purchase. The rate of contraction in Greek production was the fastest since April 2009.

Eurozone manufacturers linked higher levels of output and new orders to ongoing market recovery, inventory rebuilding, the launch of new product lines and the recent weakness of the euro. The latter helped new export orders increase at the fastest pace since April 2000 (and more strongly than signaled by the earlier flash estimate).

Rates of export growth were especially buoyant in Germany, the Netherlands and Ireland, hitting series record peaks in each nation. Exporters of capital goods reported the sharpest gains.

Backlogs of work rose for the fifth successive month and to the greatest degree since July 2006. The increases in Germany (survey record high) and France were particularly steep. Rising backlogs helped the manufacturing labor market move closer to stabilization. Although employment fell for the 22nd successive month, the rate of job losses was the weakest since August 2008 and slower than the earlier flash estimate.

Staffing increased slightly in the Netherlands for the first time in 19 months. All other nations reported further job losses, although rates of job losses eased in Germany, Italy, Spain, Ireland and Austria.

Average input prices rose at the quickest rate for over one-and-a-half years, and faster than the earlier flash estimate. There were reports of higher purchase prices for chemicals, electronic components, metals, oil, paper and plastics. Higher import costs were also mentioned, partly reflecting the euro-United States dollar exchange rate.

Part of the increase in input costs reflected rising demand for raw materials and supply-chain factors. This was highlighted by the largest increase in input purchasing for 44 months and the sharpest lengthening of suppliers’ delivery times since July 2006. The extents of the increases in both purchases and supplier lead times were greater than the earlier flash estimates.

Meanwhile, average output prices were broadly unchanged in March. Selling prices rose in Germany, Italy, Austria and the Netherlands. The sharpest drop in output prices was registered for Greece, followed by Spain.

Commenting on the PMI data, Markit chief economist Chris Williamson said: “Eurozone manufacturers reported a further surge in growth in March, suggesting that the economic recovery remained in full swing at the end of the first quarter. A weakened euro combined with rising global demand helped boost export growth to the highest for 10 years in March. Output grew at a rate exceeded in only two periods over the 12-year history of the PMI survey as a result, and job losses slowed to the weakest seen since the collapse of Lehmans. However, national divergences widened to a survey record, ranging from record output growth in Germany to a steep and accelerating rate of contraction in Greece, where output is now falling at a rate not far off that seen at the very height of the financial crisis.”