Edge and Odds

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Edge and Odds

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EUROZONE MANUFACTURING PMI STEADY AT 52.2

May data signalled a modest acceleration in the rate of expansion of the eurozone manufacturing sector. The final seasonally adjusted Eurozone Manufacturing PMI® posted 52.2, matching March’s ten-month high but coming in just below the earlier flash estimate of 52.3.

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Manufacturing production expanded again in May, extending the current sequence of growth to 23 months. Although the rate of increase ticked lower, it was still among the fastest seen over the past year. The trends in both total new orders and new export business both improved, suggesting output growth should be sustained in the coming months.

New business and new export orders both rose at the fastest rates in just over a year. The improved level of demand encouraged firms to take on additional staff, leading employment to rise for the ninth month running. Part of the increase in jobs reflected rising levels of outstanding business. Of the remaining countries for which data were available, Spain, the Netherlands and Italy were the leading lights. Germany and Austria saw modest expansions and France a further contraction.

Output and new orders in Spain rose at the quickest pace since 2007, underpinned by the strongest gain in new export business for 15 years. Production and new order growth in Italy was the fastest in over four years, while accelerations were also signalled for the Netherlands. All three of these nations registered solid job creation.

Output growth in Germany slowed sharply to a five-month low in May. The rates of increase in both total new business and new export orders also remained muted, in turn slowing the pace of job creation. Austria saw a modest acceleration in output growth, despite a slight decrease in new orders, and further headcount reductions.

The downturn in production at French manufacturers was extended to 12 months in May. New orders and employment also both fell, but there was a mild pick up in new export orders received.

Cost pressures remained on the upside in May, as input prices rose for the third month running and to the greatest extent since April 2012. The euro exchange rate and recent oil price increases both contributed to the latest rise in costs. Input price inflation was recorded in all of the nations except Austria, with accelerations signalled in each of the ‘big-five’ countries (Germany, Italy, France, Spain and the Netherlands).

Meanwhile, average output charges were unchanged since April. Increases were signalled in Germany, Italy and Spain, while French, Dutch and Austrian manufacturers all reduced their average selling prices.

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CHINA MANUFACTURING PMI REMAINS WEAK

Operating conditions in China’s manufacturing sector continued to deteriorate in May, as companies signalled a renewed contraction of output as total new business fell for the third month running. Data suggested that weaker demand overseas was a key factor behind the latest fall in new business, as new export work declined at the steepest rate since June 2013. Meanwhile, deflationary pressures in the sector eased, with both input and output prices recording the slowest rates of deflation since August 2014.

Adjusted for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 49.2 in May. Although this was up slightly from 48.9 in April, the index remained below the crucial 50.0 neutral mark and signalled a third successive monthly deterioration in the health of China’s manufacturing sector. However, the rate of deterioration remained only slight.

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May data signalled a renewed fall in Chinese manufacturing output, after production volumes stagnated in April. Although the rate of decline was only marginal, it was the first time that output had contracted since last December. Anecdotal evidence suggested that a softening in market conditions had dampened client demand. Furthermore, total new business placed at Chinese manufacturers has now fallen for three successive months. Data suggested that weaker demand from abroad was the main factor behind the latest reduction in new work. Moreover, the latest fall in new export business was the sharpest in nearly two years.

Manufacturers tempered their production plans in line with fewer new orders in May, with purchasing activity falling for the second month in a row. Consequently,
stocks of purchases fell in May, though the rate of depletion was only slight.

Employment at Chinese goods producers declined again in May, extending the current sequence of job shedding to 19 months. According to anecdotal evidence, lower production requirements and the nonreplacement of voluntary leavers led to reduced staff numbers. Meanwhile, backlogs of work rose fractionally over the month, after a slight reduction during April.

Average input costs fell again in May, albeit at the weakest rate in nine months. Prices charged also fell in May but, in line with the trend for cost burdens, the rate of discounting eased to its slowest since August 2014.