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Eurozone - Job creation in manufacturing slows to 15-month low

03 October 2011

The Eurozone manufacturing sector contracted for the second successive month in September. At 48.5, down from 49.0 in August, the final Eurozone Manufacturing Purchasing Managers Index (PMI), published by research firm Markit, came in slightly above the flash estimate of 48.4, but nonetheless hit its lowest level since August 2009.

Only Germany saw its PMI hold above the 50.0 neutral mark, though only by a small margin, as the Netherlands and Austria both saw PMIs slip into contraction territory. Italy was the only nation to see a slight rise in its PMI, but the rate of contraction signalled was still the second-sharpest in two years. Greece saw the steepest rate of contraction of all countries covered, followed by Spain and then Ireland.

Output and new orders fall further

Manufacturing production and new orders both continued to contract in September. The rate of contraction of output eased, but new orders fell at the fastest rate for 27 months.

Output fell for the second month running, dropping to a slightly lesser degree than in August (and also by less than indicated by the earlier flash estimate). Rising production in Germany, Italy and the Netherlands was offset by steep declines in Greece, Spain and Austria and more modest downturns in France and Ireland.

New orders fell at the steepest pace since June 2009, driven down by a combination of disappointing domestic sales and weak exports (which also declined at the quickest rate since June 2009).

Rates of decline accelerated in all cases except Italy and Greece. The steepest deterioration was reported in Spain, where new orders fell at the fastest pace since May 2009. New orders also showed the largest falls for over two years in Germany, France, the Netherlands, Ireland and Austria.

New export orders also fell across all countries, with the Netherlands and Germany reporting the sharpest rates of decline. Only Italy saw new export orders fall at a slower rate than in August.

The outlook for the Eurozone manufacturing sector also darkened. Firstly, backlogs of work dropped to the greatest extent since July 2009. Secondly, the forward-looking new orders-to-finished goods inventory ratio fell for the seventh month running. This is the third-longest sequence of decline in the survey history, and leaves the ratio at its lowest for almost two-and-a-half years.

Input price inflation eases in all nations

Inflationary pressures eased further in September, with both input prices and prices charged for goods by manufacturers rising only modestly. This was in sharp contrast to the strong rates of increase seen earlier in the year.

Input costs rose to the least extent since November 2009, with rates of inflation easing in all nations covered by the survey. Lower cost pressures were commonly linked to lessening supply chain pressures as purchases of inputs fell for the third successive month, dropping at the fastest rate since June 2009. Stocks of purchases fell for the second month running as a result and suppliers’ delivery times were largely unchanged, registering the smallest lengthening since they began increasing more than two years ago.

Output prices showed the weakest rise since prices began rising in April 2010. Factory gate prices increased in all countries except Spain, Ireland and Greece, but only Italy reported a steeper rise than in August.

Job creation slows to 15-month low

September saw manufacturing employment rise at the weakest pace in 15 months, with the rate of job creation also slower than the earlier flash estimate. The latest increase was almost entirely centred on Germany. German jobs growth eased to an 11-month low, but was still well above the long-run series average. The Netherlands saw a slight rise in staffing levels, while all of the other nations covered reported lower employment.

Where reported, lower staffing levels partly reflected a shift towards cost cutting among manufacturers in the face of lower sales and concerns about the economic outlook.

Chris Williamson, Chief Economist at Markit, commented "Manufacturers are reporting the worst business conditions for over two years, facing a combination of lacklustre domestic demand and falling export sales. Output fell only modestly in September, but a faster rate of decline in new orders suggests that the number of manufacturers cutting production is likely to increase as we move into the fourth quarter."

"Disappointing sales and growing uncertainty about the economic outlook prompted increasing numbers of manufacturers to focus on cost cutting, leading to only a modest overall increase in employment during the month and sharply reduced input buying."

"New orders fell in all countries covered by the survey, while Germany was the only country to report any noteworthy increase in staffing levels, although even here the rate of job creation was the weakest for almost a year."

"The recent deterioration in manufacturing performance since the surging growth seen earlier in the year has been accompanied by a welcome easing of price pressures. Both input costs and producers’ selling prices rose only very modestly in September, in stark contrast to the steep rates of inflation seen earlier in the year, as weak demand prompted increasing numbers of manufacturers and their suppliers to offer discounts."

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