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EUROZONE MANUFACTURING PMI AT 51.5 ON WEAK ORDERS

May PMI data signalled a further growth slowdown in the eurozone manufacturing sector, as inflows of new business from both domestic and export markets continued to rise at lacklustre rates.

The final Markit Eurozone Manufacturing PMI® posted a three-month low of 51.5 in May, unchanged from the earlier flash estimate and the second-weakest reading since February 2015.

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imageSix out of the eight nations included in the eurozone manufacturing survey reported expansions during May. The Netherlands, in first position of the PMI growth rankings, and third-placed Germany were the only countries to report faster rates of growth. Italy saw its pace of expansion ease to a three month low, while growth in Spain and Ireland was the weakest since October 2015 and July 2013 respectively. The Austrian PMI held steady at April’s subdued (albeit above euro area average) level of 52.0. PMI readings for France and Greece remained in contraction territory, both posting 48.4.

Eurozone manufacturing production increased for the thirty-fifth successive month in May, albeit to the least marked extent since February. Underlying the latest slowdown in output growth was a weaker increase in new work received.

The pace of increase in new business eased to a 15-month low. Panellists reported that conditions remained highly competitive in both domestic and export markets. New export business rose at the weakest pace since January 2015.

Only Germany, Italy, Spain and the Netherlands saw increases in new export business, although all reported slower expansions than in the prior month.
May data provided further evidence of price discounting to support sales efforts and combat competitive pressures. Average selling prices fell for the ninth straight month, with none of the nations covered by the survey reporting an increase. However, the rate of charge deflation eased further from March’s six-year record to a five-month low.

Average purchasing costs, meanwhile, fell for the tenth month running in May. However, the rate of decrease eased to its weakest since the start of this sequence, in part reflecting recent firming of certain commodity prices (notably for oil).

Eurozone manufacturing employment rose again during May. The rate of jobs growth eased slightly and was a touch below the average for the current 21-month sequence of increases. Part of the expansion of capacity reflected a further accumulation of backlogs of work.

In line with the trend in production, staffing levels rose in all of the nations covered except France and Greece. Employment fell slightly in Greece, whereas France reported the steepest job cuts since August 2014. Among the nations reporting an increase in headcounts, only the Netherlands saw an improved pace of growth.

JAPAN MANUFACTURING PMI DOWN SHARPLY

The Japanese manufacturing sector showed no signs of improving mid-way through the second of the quarter of 2016, as both production and new orders declined at sharper rates. According to panellists, the aftermath of the earthquakes in one of Japan’s key manufacturing regions continued to weigh heavily on the goods producing sector.

Also contributing to the marked fall in total new orders was a sharp contraction in international demand. As a result, manufacturers cut back on input buying for the third month running. Employment, on the other hand, remained in growth territory, albeit at a slower pace. On the price front, cost burdens reduced further due to a fall in raw material prices, leading to a decrease in charges for the sixth consecutive month.

The headline PMI posted at 47.7 in May, down from 48.2 in April, signalling a sharper rate of deterioration in the Japanese manufacturing sector. In fact, the latest figure was the lowest since January 2013. This reflected sharper contractions in output, new orders and stocks of purchases. Production at Japanese goods producers decreased at the quickest rate since April 2014 in May. According to panellists, the earthquakes had a detrimental effect on output. Other surveyed
companies mentioned reduced international demand leading to a slump in production.

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A sharp decline in output was matched by a marked fall in new orders. Total new orders contracted at the fastest pace in 41 months, with many firms blaming the earthquakes. Data also suggested that a fall in foreign demand contributed to the decline in total sales, as new export orders fell at the sharpest rate since January 2013.

Despite worsening operating conditions, manufacturers hired additional staff. However, the rate of job creation eased from April’s three-month record to one that was slower than the average over the eight-month sequence of expansion. The stronger yen/US dollar rate helped to reduce imported raw material costs leading to a decline in input prices. Subsequently, goods producers decreased their charges. Panellists also mentioned increased competition and price negotiations with
clients as factors driving down selling prices.