Edge and Odds

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Edge and Odds

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EUROZONE MANUFACTURING PMI, ORDERS SOLID

The eurozone manufacturing sector continued to make solid progress at the end of 2015, as rates of growth in production, new orders and new export business all improved. Although input costs and output charges fell again, trends in both provided further evidence of deflationary pressures easing.

At 53.2 in December, up from 52.8 in November, the final seasonally adjusted Eurozone Manufacturing PMI® rose to its highest level since April 2014 and came in slightly above the earlier flash estimate of 53.1. The average PMI reading for the final quarter (52.8) was the best growth outcome since the first quarter of 2014, while the average for 2015 as a whole (52.2) was better than those achieved in each of the prior three years.

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With the Greek PMI edging back above 50.0, December saw PMI readings in all of the nations covered at levels signalling expansion for the first time since April 2014. Italy remained the fastest growing, with its rate of expansion improving to a 57-month record. Accelerated growth was also signalled for Ireland (five-month high), Germany (four-month high) and France (21-month record), while slower increases were seen in the Netherlands, Spain and Austria.

imageOver the final quarter as a whole, the respective average readings for the Output Index, New Orders Index and New Export Orders Index were all above their third quarter postings. The average for the Employment Index was slightly below Q3.

December data signalled the steepest rise in eurozone manufacturing production since April 2014, as output was driven higher by faster inflows of total new orders. Production rose in all of the nations covered, while only Austria and Greece failed to report increases in new orders.

The trend in new export business at eurozone manufacturers also improved, with the rate of growth reaching a seven-month high. New export orders increased in Germany, France, Italy, Spain, the Netherlands and Ireland, but fell in Austria and Greece.

The stronger gains in new work also exerted additional pressure on capacity, as highlighted by the sharpest accumulation of backlogs of work in almost two years. This led to further job creation, with the rate of increase in staffing levels identical to November’s three-month high.

With employment edging higher in France and Greece following sustained periods of job shedding, December saw increases in manufacturing workforce levels recorded in all of the nations covered by the survey for the first time since August 2007. Faster rates of expansion were signalled in Italy and Austria, with slower gains in Germany, Spain, the Netherlands and Ireland.

Price pressures remained on the downside during the latest survey month, with December seeing input costs and output charges both decrease further. However, rates of deflation were slower in both cases, with the reduction in output prices particularly modest.

Only Greece reported an increase in manufacturing purchase prices, while the other nations all saw slower rates of decrease. Output charges rose in Germany, Italy and Ireland.

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CHINA MANUFACTURING PMI KEEPS FALLING

From the independant Caixin/Markit:

Operating conditions faced by Chinese goods producers continued to deteriorate in December. Production declined for the seventh time in the past eight months, driven in part by a further fall in total new work. Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December.

As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements. Meanwhile, deflationary pressures persisted, as highlighted by further marked declines in both input costs and selling prices.

Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) registered below the neutral 50.0 value at 48.2 in December, down from 48.6 in the previous month. Business conditions have now worsened in each of the past 10 months. That said, the latest deterioration was modest overall.

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A renewed contraction of manufacturing output weighed on the headline index reading in December. Although the rate of reduction was modest overall, it was the seventh time in the past eight months that production has fallen, and contrasted with a stabilisation in November. Anecdotal evidence suggested that relatively weak market conditions and reduced client demand had prompted firms to cut output in the latest survey period.

Indeed, total new business declined again in December, and at a similarly modest rate to those seen in the prior two months. Data suggested that softer domestic and international demand led to lower overall new work, with new export business also falling in December. Furthermore, this was the first time that new work from overseas had fallen since September.

Lower output requirements underpinned a further fall in purchasing activity in December. Moreover, the rate of contraction quickened slightly since November and was marked overall. As a result, stocks of inputs also declined over the month, while fewer sales led to a slight accumulation of stocks of finished goods.

Manufacturing companies continued to cut their payroll numbers at the end of 2015 and at a moderate rate. According to panellists, lower staff numbers were the result of company down-sizing policies and cost-saving initiatives. Fewer employees contributed to an accumulation of outstanding work in December, with the rate of growth quickening to an eight-month high.

December data signalled a further fall in average cost burdens faced by Chinese manufacturers. Moreover, the rate of reduction eased only slightly since November and remained sharp overall. Panellists that reported decreased input costs widely attributed this to lower raw material prices. Manufacturers generally passed on their cost savings to clients in the form of lower selling prices, while some companies mentioned that greater market competition had led them to cut their tariffs.

The official PMI:

China’s PMI rose slightly to 49.7 in December from 49.6 a month earlier. Subindices measuring new orders, production activity and inventory rose, while the subindex tracking employment fell. Large companies fared better than small companies in December.

China’s official nonmanufacturing purchasing managers index rose to 54.4 in December from 53.6 in November.