Eurozone manufacturing ended 2010 on strong footing; PMI rises to 57.1

The Markit Final Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 57.1 in December, up from the earlier flash estimate of 56.8 and its highest reading since April’s 46-month peak. The level of the PMI rose throughout the fourth quarter of 2010 and has remained above the neutral 50.0 mark for 15 months in a row.

The average PMI reading for the final quarter was 55.7, slightly above the 55.2 recorded in Q3, but below Q2’s 3.5-year high of 56.4. For 2010 as a whole, the PMI average (55.4) was well above that for 2009 (43.3).

National PMI readings generally moved higher, led by a near record in Germany. The only exceptions were France (which nevertheless saw the fourth highest PMI reading overall) and Greece (where the PMI remained well below the 50.0 no-change mark).

The expansion was led by strong growth in Germany and robust expansions in France and Austria. Italy saw a marked improvement in its rate of increase, which hit a five-month high. Growth accelerated in the Netherlands (seven-month peak) and Ireland (fastest since June), while Spain saw renewed expansion following November’s decline. Although Greek manufacturing remained mired in deep recession, the rate of contraction eased to a five-month low.

Consumer, intermediate and investment goods producers all reported faster growth of output. Capital goods was the stellar performer, seeing a rate of increase exceeded only once in the 13-year survey history (April 2000). Consumer goods remained the weakest performer.

December saw the fastest growth of new orders since April, led by marked increases in Germany, the Netherlands, Austria and France. Italy and Spain meanwhile saw renewed growth, while the rate of increase in Ireland accelerated slightly. In contrast, Greece saw new orders fall at the steepest pace since March 2009.

New export orders increased at the fastest rate for seven months. Growth was especially strong in Germany and France, but also generally picked up elsewhere in the currency union. The only exceptions were a slower increase in Ireland and a further marked decline in Greece.

There was also evidence that Eurozone manufacturers – especially those in the strongest performing nations – were preparing for further production growth in the coming months. Purchasing activity increased to the greatest extent in eight months in December, and input inventories rose for only the second time in the past three-and-a-half years. Meanwhile, stocks of finished goods declined again and this, combined with stronger new order inflows, drove the new orders-to-inventories ratio to an eight-month high.

December saw jobs growth accelerate for the fourth month running to its fastest pace since October 2000. Germany reported a survey record rate of increase, while Austria saw near record job creation. The Netherlands and France saw employment rise again, but at slower rates than in November. The labor market recovery also broadened to include Italy and Ireland. Only Spain and Greece reported job losses.

Average selling prices rose at the fastest pace since August 2008 as firms sought to pass higher costs on to customers.

The rate of increase in input prices accelerated sharply to the steepest for six years, above the earlier flash estimate. It was also only slightly below May 2000’s survey record high. Companies saw higher prices for energy, plastics, steel and textiles. Cost inflation accelerated in almost all of the nations covered by the survey, the sole exception being Ireland. The Netherlands saw the highest rate of increase, although the sharpest accelerations were in Austria, Germany and Spain.

Part of the increase in costs reflected ongoing supply-chain pressures, as average vendor lead times deteriorated to the greatest degree since July.

Chris Williamson, chief economist at Markit, said: “Manufacturing output growth gathered pace again in December, putting the sector on a strong footing to start the New Year. The data are consistent with industrial production rising across the single currency area at a quarterly rate of 2 percent. Although down from May’s near 3 percent peak, December’s growth represents a reassuring revival from the slowdown seen during the autumn. Germany remained the star performer, seeing near-record growth, followed by France, where the PMI slipped only slightly from November’s 10-year peak. However, welcome signs of recoveries were also evident in the periphery, where export sales helped boost output growth in all cases except Greece, where the rate of decline at least moderated. The data, therefore, suggest that the manufacturing recovery may be broadening out to help lift economic growth outside of the French-German core in early 2011.”