Edge and Odds

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Edge and Odds

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Month: November 2016

EUROZONE MANUFACTURING PMI RISES TO 53.5 ON STRONG ORDERS

The rate of expansion of the eurozone manufacturing sector gathered momentum at the start of the final quarter. Growth of production, new orders, new export orders and employment all accelerated, while price pressures showed further signs of increasing.

The final Markit Eurozone Manufacturing PMI® rose to a 33-month high of 53.5 in October, up from 52.6 in September and the earlier flash estimate of 53.3. This signalled the steepest rate of improvement in operating conditions since January 2014.

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imageThe Netherlands surged to the top of the Manufacturing PMI rankings in October, with growth accelerating to a 15-month peak. Germany was also a top performer, expanding at the quickest pace in almost three years.

Austria, Spain and Ireland saw solid and improved rates of expansion at the start of the final quarter. Conditions also strengthened in France, as its headline PMI stepped back into expansion territory and reached a 31-month high. Italy eked out mild growth, albeit slower than in September, while Greece recorded a contraction for the second straight month.

Underpinning the upward movement in the eurozone Manufacturing PMI were the sharpest expansion of production since April 2014 and the second-quickest increase of total new orders over the same period. The outlook for output growth also remained positive, as backlogs of work rose to the greatest extent in 33 months.

Companies indicated that domestic and export demand improved in October. New export business rose for the fortieth successive month, with the pace of increase ticking up to its fastest in over two-and-a-half years. Almost all of the nations covered by the survey saw growth of new export orders, the exception being Greece.

The strongest expansion in new export business was registered in Germany, while France saw an increase for the first time in three months. Solid gains were also recorded by Spain and the Netherlands, while growth was comparatively mild in Italy, Austria and Ireland.

Job creation at eurozone manufacturers accelerated during October, reaching a near five-and-a-half year record. Rates of growth were strongest in Germany and the Netherlands, hitting 61- and 66-month highs respectively.

Employment also rose at a quicker pace in Italy and Greece, and returned to growth in Ireland, but slowed slightly in Austria and Spain. Staffing levels moved closer to stabilizing in France, but nonetheless fell for the eighth straight month.

October survey data pointed to rising price pressures. Input cost inflation accelerated to a 15-month high, mainly due to increased commodity prices (particularly oil-related costs). Meanwhile, output charges rose for the first time since August 2015. Firming demand permitted some pricing power, allowing manufacturers pass on part of the increase in their costs.

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U.S. MANUFACTURING PMI, PRICES RISE

Markit:

Operating conditions in the U.S. manufacturing sector strengthened to the greatest degree for a year during October, underpinned by faster expansions in both production and new orders. With pressure on capacity, as highlighted by a sharper increase in backlogs of work, further jobs were created.

Meanwhile, emergent inflationary pressures were evident as both input and output prices rose at solid rates.

October’s headline Markit Final U.S. Manufacturing Purchasing Managers’ Index™ (PMITM) was slightly better than the earlier flash reading of 53.2, coming in at 53.4. That was a marked improvement on September’s 51.5 and the best reading recorded for a year. Operating conditions have continuously improved throughout the past seven years, with October’s PMI reading notable for being the highest recorded by the survey for 12 months.

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Driving the PMI higher in the latest survey period was a strengthening in production, which was in turn supported by a marked upturn in new orders. In both cases, rates of growth indicated by respective sub-indices were at their strongest in a year, reportedly the result of firmer market demand and the development of new products.

Both of these factors encouraged inventory building during the month, with both finished goods stock and input inventories rising since September. Growth in raw material and semi-manufactured inventories was the best since October 2015 and was also underpinned by a marked rise in purchasing activity. Latest data showed that manufacturers responded to positive demand developments by buying inputs at a rate not seen since June 2015.

October’s survey implied that domestic demand was key in driving the expansion of new order books. Whilst there was an increase in new exports, reflective of improved client relationships and general market expansion, growth was modest and lagged those seen during the summer.

Rising production and new order requirements placed some pressure on capacity during October, with backlogs of work increasing to the greatest degree in three months. This development encouraged further hiring of staff, with the latest data showing a rise in employment for the fortieth month in a row. However, growth was modest and slightly down on September’s pace.

Amid reports of rising commodity prices, average input costs increased for the seventh month in a row. The rate of inflation was also the greatest recorded by the survey for two years, and encouraged companies to pass on these higher costs to clients in the form of increased output charges. The net result was a solid pace of charge inflation that was the strongest seen since November 2011.

The ISM (via Haver Analytics):

The ISM composite index of factory sector activity rose to 51.9 from an unrevised 51.5 in September. It was the seventh month this year when the index was above break-even.

Performance amongst the component series was uneven. Production rose moderately, and recovered two months of decline. The employment index increased above 50 for the first time since June. During the last ten years, there has been an 88% correlation between the index level and the m/m change in factory sector payrolls. The higher supplier delivery index suggested the slowest product delivery speeds since June. To the downside was the new orders index which gave up half of its September increase. Continued inventory decumulation was suggested by the index falling to the lowest level since May.

The separate prices paid figure strengthened to 54.5, up from 53.0 during the prior two months. It remained below, however, the May high of 63.5. Twenty-five percent (NSA) of respondents reported paying higher prices while 16 percent paid less.

Amongst the other ISM series, the export index improved slightly to 52.5 and remained up versus the February low of 46.5. The imports index increased to 52.0, the highest level in three months. The order backlog index reversed its September gain.

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