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.
The final RBS/NTC Eurozone Manufacturing PMI - Purchasing Managers' Index - (a composite indicator designed to provide a single-figure summary of business conditions) registered 52.3 in February. The PMI was in line with the 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. A modest easing in the growth rate in France meant the two biggest Eurozone economies had identical rates of increase. In contrast, output growth fell slightly in Italy to a rather modest pace, while production in Spain, as we have seen, fell for the first time for five years, and at the steepest rate since December 2001.
The data from the manufacturing PMI is pretty consistent with the latest industrial production data released by the Spanish Statistics OFfice (INE). Accoring to the release the Spanish Industrial Production Index - when adjusted for working day effects increased by 0.7% in January when compared with January 2007. Uncorrected the Index was down 0.2% year on year.
The calendar adjusted year on year rates of change were 1.8% for consumer goods (-1.1% for durable consumer goods and 2.3% for non-durable consumer goods), 4.6% for capital goods, -2.3% for intermediate goods and 1.6% for energy. The activities which saw the greatest increases in January were the manufacture of radio, television and communications equipment and apparatus, and the manufacture of tobacco products, which jointly rose by 10.5%. In contrast, the strongest contraction was in the manufacture of office machinery and computers, at -24.6%, and mining and quarrying of energy producing materials, at -19.2%.
Activity in Spain's service sector also 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 las Wednesday. Though the headline PMI figure recovered to 46.1 from January's 44.2 (see the chart above), 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.