Edge and Odds

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Edge and Odds

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EUROZONE MANUFACTURING PMI EASES TO 52.0

The eurozone manufacturing sector continued to make steady progress at the end of the third quarter, as production and new business both expanded at modest  rates. Cost pressures shifted to the downside, however, with input costs and selling prices falling during the month.

The final seasonally adjusted Eurozone Manufacturing PMI® eased to a five-month low of 52.0 in September, below August’s 52.3 and unchanged from the earlier flash estimate. The latest reading was broadly in line with those registered over the past seven months.

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The average PMI level over the third quarter as a whole (52.3) was unchanged from that in the second quarter. The respective averages for the Output Index and New Orders Index were both slightly higher than in quarter two.

Manufacturing production rose for the twenty seventh successive month in September, as companies scaled up output in response to rising new order inflows and a further accumulation of backlogs of work. However, the rates of increase in production and new business were both a notch lower than in the prior month. Ireland topped the Manufacturing PMI growth table in September, and was one of only two nations (the other being Austria) to see growth accelerate. The Netherlands was in second position overall.

France moved back into expansion territory, leaving Greece as the only nation to report a contraction. French output rose for the first time in three months and at the quickest pace since March 2014, as the trend in new orders moved closer to stabilising.

Italy saw solid expansions in both output and new orders, although the rates of increase slowed sharply to eight- and seven-month lows respectively. Output growth also eased in Germany (two-month low) and Spain (weakest since August of last year). Both nations saw slower increases in new business.

New export order inflows improved again in September, rising for the twenty-seventh successive month. Only Greece reported lower volumes of new export business. Faster rates of growth were registered in Italy, Spain and Ireland, but slower increases were seen in Germany and the Netherlands.

Job creation was recorded for the thirteenth straight month in September. Although the overall rate of growth eased to a four-month low, broad-based increases were seen across Germany, Italy, Spain, the Netherlands, Austria and Ireland. The trend in employment moved closer to stabilisation in France, while the rate of decline in Greece remained sharp despite slowing since August.

Price pressures shifted to the downside in September. Average input costs fell at the fastest pace in eight months, which companies attributed to lower commodity (especially oil) prices. Almost all of the nations covered reported sharp drops in input costs, the sole exception being Greece – which registered a solid rate of increase.

Meanwhile, output charges decreased for the first time in six months. Austria reported no change in average selling prices, whereas the remainder of the nations covered all saw output charges fall.

CHINA PMIs POINT TO WEAKER ECONOMY

TERRIBLE MANUFACTURING PMI

Latest survey data signalled the quickest deterioration in operating conditions faced by Chinese manufacturers since March 2009. Total new work fell at the quickest rate in over three years, partly driven by a steeper fall in new export business. As a result, companies cut output at the sharpest rate in six-and-a-half years, while staff numbers fell at the quickest pace since the start of 2009. Reduced production schedules also prompted firms to lower their purchasing activity again in September, while disappointing sales led to the strongest increase in stocks of finished goods for over three years. On the price front, both input costs and output charges fell at sharper rates.

Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) registered at 47.2 in September, down fractionally from 47.3 in August. The health of the sector has now deteriorated in each of the past seven months. Furthermore, the latest deterioration was the most marked since March 2009.

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A key factor weighing on the headline index was a sharper contraction of manufacturing output in September. According to panellists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.

Reflective of lower workloads, manufacturing companies cut their staff numbers again in September. Moreover, the latest reduction in employment was the fastest seen in 80 months. Meanwhile, reduced production capacity led to an increased amount of unfinished work, though the pace of backlog accumulation was only slight.

Input buying fell for the third month in a row in September, amid reports of lower production schedules and fewer new orders. As a result, stocks of inputs declined again in September at a modest pace. A number of panellists mentioned adjusting their inventories to reflect reduced production requirements. Meanwhile, disappointing sales led to a build-up in stocks of finished goods for the second consecutive month. Moreover, the pace of accumulation was the strongest seen since August 2012.

Manufacturing companies noted a further steep decline in average cost burdens during September. Furthermore, the rate of deflation was the sharpest seen since April. Reports from panellists mentioned that lower raw material prices, particularly for oil-related products, had cut overall input costs. Increased competition for new work led manufacturing companies to generally pass on their savings to clients, as highlighted by a solid decline in output charges.

COMPOSITE AND SERVICES PMI ALSO WEAK

The latest Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled a second successive monthly decline in total Chinese business activity during September. Furthermore, the Caixin Composite Output Index posted at 48.0, down from 48.8 in August, and signalled the fastest rate of contraction since January 2009.

The sharper decline in total business activity primarily reflected a steeper contraction of manufacturing output in September. Moreover, the latest fall in manufacturing production was the fastest seen in six-and-a-half years.

Meanwhile, service sector companies continued to signal increased business activity in September, though the rate of expansion was only slight. This was signalled by the Caixin China General Services Business Activity Index posting marginally above the neutral 50.0 value at 50.5 in September, down from 51.5, and its lowest reading in 14 months.

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September data pointed to a faster decline in total new business placed at manufacturing companies, while service providers saw only a marginal expansion in new work. Furthermore, it was the slowest rate of new order growth recorded in the service sector since July 2014. According to anecdotal evidence, the military parades that celebrated the 70th anniversary of the end of the second world war had partly dampened customer numbers and new business. With new work at manufacturers falling sharply, composite new orders declined at the fastest pace since March 2009.

Employment trends continued to diverge across the manufacturing and services sectors in September. Manufacturers cut their workforce numbers at a solid pace that was similar to that seen in the prior month, while service providers continued to increase their payroll numbers. However, the rate of job creation was only slight, despite improving upon August’s fractional pace. Consequently, employment at the composite level declined for the fourth successive month.

Manufacturing companies signalled a further increase in outstanding workloads in September, which was often linked to reduced productive capacity. Meanwhile, softer growth in new work enabled service sector firms to work through their unfinished business in September and at the fastest rate in ten months. Overall, backlogs of work declined again at the composite level, albeit at a marginal rate.

Average input costs fell markedly at Chinese manufacturing companies in September, while service sector companies reported a further rise in cost burdens. That said, the rate of cost inflation was the slowest seen in three months and only slight. Consequently, input prices fell for the thirteenth month in succession at the composite level.

Latest data signalled that both manufacturers and service providers cut their prices charged in September, with both sectors citing relatively weak client demand as a key factor leading them to discount their tariffs. Furthermore, it was the fastest reduction in service sector selling prices since June 2012. At the composite level, output charges fell at the quickest rate for a year-and-a-half.