Edge and Odds

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EUROZONE MANUFACTURING PMI EDGES UP TO 51.0

The start of 2015 saw a modest growth acceleration in the eurozone manufacturing sector. The final seasonally adjusted Eurozone Manufacturing PMI® posted in line with the earlier flash estimate of 51.0 and slightly above December’s print of 50.6. Improvements in business conditions were seen in Germany, Spain, the Netherlands and Ireland during January, with solid growth again signalled for the latter three. Moreover, growth strengthened in Spain and the Netherlands.

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The manufacturing downturns in France, Italy, Austria and Greece continued at the start of the year. The rates of contraction in France and Italy eased to near-stabilisation, but Austria and Greece registered steepening downturns.

Manufacturing production rose at the fastest pace for six months in January, underpinned by a mild increase in new order volumes and work on existing contracts. Concurrent growth of production and new business was registered in Germany, Spain, the Netherlands and Ireland.

imageItaly saw a slight gain in output for the first time since September 2014, and the rate of decline in France eased to the weakest in the current eight-month sequence of contraction. However, the continuing slump in new orders to both nations may act as an ongoing headwind in coming months. Output and new orders also declined in both Austria and Greece.

Eurozone manufacturers are facing a duel constraint of weak domestic demand and subdued export performance. The final quarter of last year and the start of 2015 have seen some of the weakest gains in new export business* since the recovery in foreign order inflows began in July 2013. Germany, France, Austria and Greece all reported declines in January, almost offsetting the solid gains seen elsewhere.

Eurozone manufacturing employment rose for the fifth successive month in January. The rate of jobs growth was in line with December’s eight-month high, but remained tepid nonetheless. Workforce numbers rose solidly in Spain and Ireland, while modest gains were signalled in Italy and the Netherlands. Jobs growth eased to near-stagnation in Germany and Greece, while further losses were highlighted in France and Austria.

The recent sharp declines in international oil prices drove average input costs down at the fastest pace for five-and-a-half years. The steepest reductions in purchase prices were signalled in the Netherlands (fastest since May 2009) Germany (fastest since July 2009), Austria and France (steepest in 30 months in both cases).

The trends in average purchase prices in Italy, Spain, Ireland and Greece also moved back into deflationary territory in January, following increases in December.
Lower cost pressures were partly reflected in average selling prices, as output charges fell for the fifth month running and to the greatest extent in over one-and-a-half years. However, the rate of decline in selling prices was substantially less marked than that signalled for input costs. None of the nations covered by the survey reported an increase in selling prices.

CHINA MANUFACTURING PMI STEADIES AT 49.7

Chinese manufacturers saw a fractional deterioration in operating conditions at the start of 2015. Although output rose slightly and new orders broadly stabilised,
staffing levels were cut for the fifteenth successive month. Meanwhile, relatively subdued client demand led companies to reduce their stock holdings of both post and pre-production goods in January. On the costs front, lower raw material prices led to the steepest reduction in average input costs since March 2009, which
contributed to a sharp decline in prices charged.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 49.7 in January, down slightly from the earlier flash reading (49.8), but up fractionally from 49.6 in December. This signalled a second successive monthly deterioration in the health of the sector, albeit only slight.

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Latest data indicated a renewed expansion of Chinese manufacturing output in January, though the rate of increase was only fractional. This was the first time that
production has risen in three months. Meanwhile, total new business was broadly unchanged, following a slight reduction in December. According to panellists,
relatively muted client demand, both at home and overseas, dampened new order growth. Furthermore, growth in new export work eased to a marginal pace that was the slowest in the current nine-month sequence.

Manufacturing companies reduced their headcounts again in January. That said, the rate of job shedding was the weakest recorded in 15 months and only slight.
Reduced workforce numbers contributed to a further accumulation of outstanding business in January. That said, the rate of increase eased since December and
was modest overall.

Purchasing activity meanwhile declined for the second straight month in January. However, the rate of reduction was similar to that seen in December and marginal. Relatively subdued client demand also led companies to reduce their inventories of inputs and finished goods at the start of the year. Furthermore, stocks of pre-production goods declined at the strongest rate in nine months.

Average input costs declined for the sixth month running in January, with the rate of deflation accelerating to the sharpest since March 2009. Output charges set by Chinese manufacturers also fell at an accelerated rate in January.

The Chinese government’s official PMI dipped to 49.8 for January, the first reading below 50 since 2012.

Clock Chinese policy makers and investors are now in for an extended period of uncertainty. Data for the first two months of the year are heavily distorted by the variable timing of the week-long Lunar New Year holiday, which this year starts Feb. 18.

Trade data during this period is often volatile and difficult to interpret. Rather than trying to adjust for the seasonal distortions, the National Bureau of Statistics publishes January and February data together for indicators like industrial production and fixed-asset investment.

In other words, a clear picture of how the Chinese economy is performing won’t emerge until March at the earliest. (WSJ)

Also:

  • Domestic demand held up better than external demand – the export orders subcomponents of both indices fell markedly last month.