Edge and Odds

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EUROZONE MANUFACTURING PMI, INFLATION RISE

The upturn in the eurozone manufacturing sector continued to gather pace in November. Operating conditions improved to the greatest degree since the start of 2014, underpinned by further growth in production volumes, rising staffing levels and stronger inflows of new work.

The final Markit Eurozone Manufacturing PMI® rose to a 34-month high of 53.7 in November, up from 53.5 in October and unchanged from the earlier flash estimate. The PMI signalled expansion for the forty first successive month, extending its current record sequence above the stagnation mark of 50.0.

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National PMI data pointed to a solid spine of growth running from the Netherlands, through Germany and into Austria. This was highlighted by the Netherlands PMI hitting a 35-imagemonth high, the Austrian PMI a 66-month record and the German PMI remaining close to October’s 33-month peak. Stronger rates of expansion were also signalled in Spain, Italy and Ireland, while growth slowed slightly in France. The downturn in Greece continued, with its PMI falling to a 12-month low (but still well above the lows in mid-2015).

Manufacturing production rose for the forty-first month running in November, although the rate of expansion eased slightly. Underpinning the increase in output was the sharpest rise in new orders since February 2014, as demand from domestic and export markets improved. Greece was the only nation covered by the survey to register declines in output, new business and new export orders.

November saw a solid increase in new export business at eurozone manufacturers, with the rate of growth accelerating to a 33-month peak. The sharpest increases were recorded in the Netherlands, Austria, Spain and Germany, with only the latter failing to see an improved pace of expansion. Faster inflows were also registered in France, Italy and Ireland.

Input cost pressures intensified in November, as the rate of purchase price inflation rose to its highest since March 2012. Companies linked this to rising raw material costs, including metals, oil and increased import prices. Part of the rise was passed on to clients in the form of increased selling prices. Output charge inflation accelerated to its steepest rate in over five years.

The improved performance of the manufacturing sector continued to filter through to the labour market in November. Job creation was signalled for the twenty-seventh month in a row, with the rate of growth only marginally below October’s near five-and-a-half year record. Staffing levels were raised in all eight of the nations covered by the survey.

Increased employment failed to prevent a further rise in backlogs of work in November. Outstanding business accumulated at one of the quickest rates since early-2011, reflecting increases in almost all of the nations covered (the exceptions being a sharp contraction in Greece and no change in Italy).

The increase in work-in-hand, combined with companies also reporting a further lengthening of vendor delivery times, suggests that demand is exceeding supply. This is likely to lead to additional scaling up of production volumes, job creation and continued price pressures in coming months.

Chris Williamson, Chief Business Economist at IHS Markit:

Pointing up Manufacturing output price inflation is currently running at its highest for over five years, which will inevitably translate into higher consumer prices in coming months.

CHINA MANUFACTURING PMI EDGES DOWN TO 50.9

Chinese manufacturing production continued to expand at a robust pace in November,
despite the rate of growth easing since October’s five-and-a-half year peak. At the same time,
companies reported a softer expansion of total new orders, while new export work was
broadly stable after a slight fall in October.

Meanwhile, cost-cutting initiatives underpinned a further fall in staff numbers, though the rate of job shedding was the slowest seen in a year-and-a-half. November also saw a sharp pick up in inflationary pressures, with both input costs and prices charged rising at the fastest rates since early-2011.

At 50.9 in November, the seasonally adjusted Purchasing Managers’ Index™ (PMI™) fell from a 27-month high of 51.2 in October, to signal a marginal improvement in overall operating conditions. Nonetheless, the health of the sector has now strengthened in each of the past three months,
which marks the longest period of improvement since late-2014.

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Chinese manufacturers noted a further rise in production volumes during November, stretching the current sequence of expansion to five months. Though solid overall, the rate of output growth softened since October. Companies that raised production generally commented on
greater intakes of new work. However, in line with the trend for output, the rate of new order book expansion weakened since the previous month and was moderate overall.

A number of panellists suggested that stronger domestic demand was behind the latest rise in new
business. Furthermore, new export work was broadly unchanged in November, after a slight decline in the previous survey period.

Firms continued to increase their purchasing activity in November, with the rate of growth edging up to a four-month high. However, the use of inputs in the production process led to a marginal drop in inventories of purchased items for the second month in a row. In contrast, stocks of finished items rose slightly in November, which some firms attributed to increased output.

A lack of stock at suppliers contributed to a further lengthening of delivery times. That said, the rate at which vendor performance deteriorated was only marginal.

November signalled a further decline in Chinese manufacturing employment, as a number of companies sought to reduce their costs. That said, the rate of job shedding was the weakest seen in 18 months. Nonetheless, a combination of lower staff numbers and increased new work led to a further rise in outstanding business.

Inflationary pressures intensified over the month, with Chinese manufacturers signalling the sharpest increase in cost burdens since March 2011 during November. Anecdotal evidence suggested that higher prices for raw materials, particularly for items such as metals, had raised
overall input costs. In order to help protect their margins, firms generally raised their prices charged, and to the greatest extent since February 2011.