Sunday, March 09, 2008

Eurozone Manufacturing and Services PMIs February 2008

The February reading on the RBS/NTC Eurozone Manufacturing PMI - Purchasing Managers' Index - (a composite indicator designed to provide a single-figure summary of business conditions across the eurozone) registered 52.3 . The PMI was in line with the earlier flash reading and down from 52.8 in January, signalling a slight weakening in the rate of expansion to the second weakest level registered in the past two-and-a-half years. PMI readings among the big-four euro nations showed the widest variation for seven-and-a-half years, with continued solid growth in Germany and, to a lesser extent, France contrasting with near-stagnation in Italy and an accelerating rate of contraction in Spain. The PMI for Italy hit a two-and-a-half year low while Spain saw the sharpest rate of contraction since December 2001.

Of the big-four countries, only Germany saw an acceleration in output growth, with German manufacturing activity weakening slightly in February - to 54.3 from 54.4 in January - but remaining robust, with employment growth holding near the strongest level on record. NTC said its measure of employment growth in the manufacturing sector fell to 55.3 in February, just below January's 55.6, which was the highest since the survey began in April 1996. A gauge of output advanced to 56.0, the highest since September, from 55.7.

However, there were signs the pain being caused to exporters by the strong euro was worsening, and the index of new export orders slipped to 52.5 from 52.7 while a measure of input prices jumped to 65.1, the highest since July, and up from 62.8 in January. So factory gate price inflation is on the way up as manufacturers evidently seek to pass through some of their higher raw material and energy costs to clients.

In France a dip in foreign orders and rising inflation dragged on French manufacturing activity in February the survey showed. The NTC/CDAF Index slipped to 53.8 in February from 53.9 in January, but kept above both the 50.0 mark separating growth from contraction and the series' long-term average of 53.1.

A sub-index for output fell to 56.0 in February from 56.4 in January, hitting its lowest point since November 2007. Chief NTC Economist Chris Williamson said France's manufacturers still lead Germany, Spain, and Italy in output, but warned the months ahead could present more problems.

Domestically, hiring in France picked up to its highest level since last July as companies took on staff to keep up with backlog of work. This is broadly consistent with the positive employment data we have seen coming out of France of late, and seems to suggest the contraction in umemployment will continue, at least for the time being.

Inflation concerns also rose in the February survey, with the input price index rising to 68.8 from 68.4 in January to reach its highest level since July 2007 and the output price index climbing to a 12-month high of 58.6 from 57.8. Rising prices have been the main complaint for French consumers and have driven recent falls in morale and spending.

Italian manufacturing growth slowed in February, as orders fell for the second month running and exports stagnated, and the NTC/ADACI Index came in at 50.6, down from January's 50.8.

Export orders -- which had been relatively buoyant and offsetting low domestic demand -- stagnated for the first time since May 2005, reflecting the effect of a strong euro and reduced demand for Italian consumer goods in foreign markets. In February the overall new orders sub-index remained at 49.4 and output growth slowed to 51.3 from 51.8, with output of consumer goods contracting. The survey also had evidence that manufacturers themselves were preparing for a sustained slowdown. The employment sub-index fell into negative territory (49.2) for the first time since last September, indicating companies were tightening their belts. Business confidence hit a 28-month low in February, according to economic think tank ISAE, with consumer goods makers particularly gloomy amid falling orders.

Spanish manufacturing activity contracted again in February, posting its weakest performance in over six years, according to last Monday's NTC Purchasing Managers Index (PMI). All five component indices of Index (PMI) pointed to worsening conditions as both production and new orders fell in February following the modest growth reported in January.

The headline PMI, which measures the general health of Spanish manufacturing, fell to 46.7 -- its lowest since December 2001 -- from 49.8 in January, pushing it further below the 50.0 mark separating growth from contraction. General Industrial production fell for the first time in five years, putting on its worst performance in over six years, with anecdotal evidence suggesting falling new order volumes had led firms to cut output. Manufacturers' new order volumes fell at the sharpest pace for 74 months in February (since December 2001), with the reduction in new work linked to worsening domestic demand alongside greater competition from abroad. The survey also suggested that alongside the ongoing internal demand contraction which Spain is undergoing, the continuing strength of the euro against the dollar is contributing to weaker export demand. The forward-looking indicators in the survey continued in the same gloomy vein, with employment expectations falling for a sixth consecutive month, while purchasing plans fell at the sharpest pace since July 2003. Outstanding work work awaiting completion also contracted.

Services PMI

Activity in Spain's service sector fell to a record low in February as costs surged while business gave few signs of any kind of bounce back, according to the NTC Purchasing Managers Services Index (PMI) published last Wednesday. Though the headline PMI figure recovered to 46.1 from January's 44.2 (see the chart below), the figure was still well below the 50 mark which divides growth from contraction and was the second weakest reading in the survey's 8-1/2 year history.

"Clearly there's a lot of downward pressure on growth," Chris Williamson, Chief Economist at NTC Research is quoted as saying. He added that the survey's forward-looking indicators emphasised the risks of a sharp slowdown in Spain after a long economic boom. A measure of confidence in the business outlook slipped to 59.2 from 59.8 in January (achieving in the process a fall of 14.2 points in a year and a new low for the survey) with respondents stressing their apprehension in the face of increasing economic uncertainty.

The new business index recovered somewhat to 45.9 from 43.5 but showed demand still falling. As firms continued to work their way through backlogs of business, employment showed the most marginal growth in 4-1/2 years.

Italy's service sector contracted in February at its fastest pace for more than a decade, as new orders languished and outstanding business fell away sharply, according to NTC/ADACI Services PMI. The 47.2 reading was well below the 50 mark separating expansion from contraction, and marked the third consecutive month of declining activity and the worst reading in the survey's 10-year history.

"A record fall in business activity was underpinned by a lack of new orders, reflective of low levels of demand," according to the NTC report. Fewer new orders meant backlogs of work were cleared for the seventh consecutive month in growing evidence of spare capacity in the sector.

Growth in France's services sector rebounded in February as sustained demand boosted activity from the two-year low it had hit a month earlier, and the NTC/CDAF Services Index (PMI) rose to 58.2 in February from 56.6 in January, clocking up a 56th consecutive month above the 50 floor for growth and bringing the 2008 level near to 2007's 58.6 average.

A sub-index that tracks new business growth rose to 57.2 from 56.1 in January, well off levels above 60 hit in recent years but still driving a service sector boom that has outshone Germany, Italy and Spain, the other major euro zone economies. "The rate of growth remains quite impressive," said Chris Williamson, chief economist at NTC.

Even so, France has been hit by several weaker-than-expected economic reports in recent weeks, especially with regard to consumer spending which drives a large part of the service sector. French growth slowed in the fourth quarter of 2007 in step with the global economic downturn, while January consumer spending suffered its biggest drop in over a year and February consumer morale fell to its lowest in more than 20 years.

Purchasing managers were more worried in February than in previous months, the survey showed. Its business expectations index fell to its lowest level in six months. "Because demand does seem to be more resilient in France among consumers, we've got more inflationary pressures," said NTC's Williamson. "The PMI's price indexes are still at worrying levels."

German services Purchasing Managers' Index rose to 52.2 in February from 49.2 in January, and the index reading was the highest for three months. Tim Moore, economist at NTC Economics said “German service sector activity expanded at a below-trend pace in February, despite service providers registering an improvement in new business volumes for the first time in three months.”

No comments: