Eurozone manufacturing PMI rose to three-month high of 56.7 in July

The Markit Final Eurozone Manufacturing Purchasing Managers’ Index rose to a three-month high of 56.7 in July, up from 55.6 in June and above the earlier flash estimate of 56.5. The reading signaled the 10th successive monthly improvement in overall operating conditions.

Growth of both manufacturing production and new orders accelerated to the fastest since April, with rates of expansion above flash estimates. Companies reported that improved business and consumer confidence boosted inflows of new work.

While the final data confirmed a better-than-expected start to the third quarter for Eurozone manufacturers, they also highlighted a wide disparity in national performance.

Growth of production was strongest in Germany by a wide margin, accelerating sharply to hit a three-month high. Italy saw growth accelerate to a pace matching April’s post-recession peak and Spain also saw output rise at the fastest pace since April.

France, the Netherlands, Ireland and Austria, on the other hand, all saw growth slow compared to post-recession peaks seen earlier in the year.

Greece was again the worst performer, the only country to see output continuing to decline, although the rate of contraction eased markedly to the weakest since January.

By sector, intermediate and investment goods producers again performed better than those in the consumer sector in July, although rates of expansion in output and new work received improved across all three categories.

New export orders rose for the twelfth consecutive month, reflecting increased sales to the United States and Asia. However, the rate of growth eased to its weakest since January, suggesting that the acceleration in total new business in July was mainly centred on the domestic market.

The main drag on growth of new export orders was a decline in the level of new export work received by consumer goods producers, which fell for the first time since last October. The export performance of German consumer goods producers was especially weak in July.

Manufacturing employment increased for the third successive month in July as firms sought to meet rising demand and reduce growing backlogs of work. Although the rate of job creation was only modest, it was still the quickest since May 2008 and above the earlier flash estimate. Employment grew at the fastest rates so far seen in the recoveries in Germany and the Netherlands and rose for the first time since January 2008 in Italy. Rates of job losses meanwhile slowed in Ireland and Spain but gathered pace in France and Greece.

Average input prices rose at a pace above both the survey average and the earlier flash estimate. A wide variety of goods were reported to have risen in price, including electronic components, packaging, plastics and steel.

Higher prices were often linked to ongoing supply-chain pressures, as increased demand for highly sought after inputs led to sellers’ markets developing. This was highlighted by a further near survey record increase in average vendor lead times and marked growth in purchasing activity.

However, measured overall, input price inflation eased further from May’s 22-month high to its lowest since February. Rates of increase eased particularly sharply in France, Italy and Austria, often reflecting lower traded commodity prices.

Part of the increase in average input costs was passed on to clients in the form of higher charges in July. Output prices have now risen in each of the past four months. Charges generally rose in the core economies, whereas output prices fell in Spain, Ireland and Greece.

Chris Williamson, chief economist at Markit, said: “The manufacturing PMI shows that the sector continued to provide a substantial boost to the euro area recovery at the start of the third quarter. With final data even stronger than the surprisingly buoyant flash estimate, there has been no loss of momentum from the second quarter. However, it is apparent that the improvement signaled by the euro area PMI for July was almost entirely driven by a growth spurt in Germany, which saw output and new orders surge at near record rates, linked to an encouraging upturn in domestic demand. PMIs for other countries generally remained weak or below peaks seen earlier in the year or, in the case of Greece, signaled ongoing decline. The average rate of new order growth outside of Germany was the slowest since February. This is clearly a very uneven recovery and the national variations in manufacturing performance may well feed through to similar divergences in consumer spending via the labor market, which will worsen the imbalances. Only in Germany, the Netherlands and Austria are manufacturers taking on staff in significant numbers, whereas staffing levels are either unchanged or falling in other countries, with job losses even accelerating in France.”