Edge and Odds

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EUROZONE MANUFACTURING PMI DROPS 0.9 TO 52.3

The eurozone manufacturing sector started 2016 on a softer growth footing, with rates of expansion in output, new orders and new export business all easing during January. The final seasonally adjusted Eurozone Manufacturing PMI® posted 52.3, down from 53.2 in December and in line with the earlier flash estimate. The PMI has now remained above the neutral 50.0 mark for 31 consecutive months.

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Despite the slower pace of headline growth signalled by the latest survey, the outlook for the manufacturing sector remained mildly positive overall. An accelerated increase in employment and higher backlogs of work both suggest that the upturn should be sustained in the coming months. Input cost pressures also remained heavily toward the downside, as purchase prices fell at one of the fastest rates during the past six-and-a-half years.

imageEurozone manufacturing production rose at the slowest pace for four months, as the rates of growth in both total new orders and new export business eased to the weakest since last September.

National PMI indices showed that rates of expansion slowed in two of the big-three euro area industrial nations (Germany and Italy) and fell back to the stagnation mark in the other (France).

All of the big-three countries reported slower increases in production and weaker trends in new business. Both total new orders and new export business grew at slower rates in Germany and Italy, and fell in France. The upturn in the Netherlands also moderated at the start of 2016. Better news was provided by Spain and Ireland. Rates of expansion accelerated in both of these nations, taking them back to the top-two positions in the PMI growth rankings. Austria also saw a faster pace of increase, but remained among the weaker performers of the nations covered by the survey. The Greek PMI fell back to the stagnation mark.

New export order inflows increased for the thirty-first month running in January. New export business rose in Germany, Italy, Spain, the Netherlands and Ireland. Contractions were seen in France, Austria and Greece.

Eurozone manufacturing employment increased for the seventeenth successive month in January. Moreover, the rate of jobs growth improved to the best signalled during this sequence. Headcounts were raised in all of the nations covered by the survey, with accelerated rates of increase registered by Germany, Italy, Spain, Greece and Ireland.

Price pressures remained on the downside at the start of 2016. Output charges fell for the fifth month in a row and to the greatest extent since January 2015. All of the nations covered by the survey reported a reduction in factory gate prices. This is the first time concurrent decreases have been signalled since February of last year.

Meanwhile, the reduction in purchasing costs was especially sharp in January, with the rate of deflation accelerating to the second-strongest during the past six-and-a-half years. All of the nations covered reported a decrease. The strongest reduction was signalled by Germany and the weakest by France.

JAPAN MANUFACTURING PMI STEADY AT 52.3

January data showed overall positive signs for the Japanese manufacturing sector. Production increased at a solid rate, alongside expansions in employment and buying activity. New order growth, meanwhile, slowed to a six month low, but was nevertheless strong in the context of historical data. Data suggested that
domestic demand weighed on total new order growth as new export orders increased at a sharper pace. On the price front, purchasing prices declined for the first time since November 2012.

The headline PMI posted at 52.3 in January, down slightly from 52.6 (the joint-strongest reading since March 2014), thereby signalling a sustained solid improvement in operating conditions in the Japanese manufacturing sector. Production at Japanese goods producers increased for the ninth month running at the start of 2016.
Despite slowing, growth in output was stronger than the average seen over the current sequence of expansion and sharper than the long-run series average.

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According to panellists, an increase in new orders led to the expansion in output. At the sector level, all three market group sectors recorded growth in production.
Subsequently, total new orders rose for the seventh consecutive month. The rate of expansion eased to the weakest since July, but was nevertheless stronger than the long-run trend. Where total new orders rose, companies mentioned the launching of new products and success in gaining new clients. Helping to boost total new work intakes, new orders from abroad rose at a quicker rate than the average over the current four-month spell of expansion. Panellists linked stronger international demand to greater trade volumes with Europe and south-east Asia.

Meanwhile, buying activity increased at the sharpest rate in nearly two years. An expansion in production and a rise in sales were frequently cited as the main drivers behind the growth in purchasing activity. Manufacturers also hired extra staff in January, with employment growth broadly in line with that seen in the final quarter of 2015.

Finally, input prices decreased for the first time in over three years, as lower oil- and metal- related goods prices started to benefit goods producers in Japan. This fed through to selling prices, with manufacturers’ charges falling to the lowest since October last year.