The final eurozone manufacturing purchasing managers index came in at 57.4 in August, according to figures published this morning by data specialist IHS Markit. This is exactly the same as the early flash figure and is higher than the final July figure of 56.6.
IHS Markit notes that output growth accelerated as a result of robust domestic demand and rising new export orders. Expansion was spread broadly but led by what it describes as a solid core of German, Austria and the Netherlands.
The 57.4 equals the 74-month high recorded in June this year, adds IHS Markit. This means the PMI has now remained above the no-change mark of 50.0 for 50 consecutive months. The other countries in the survey also saw an improvement in business conditions in August.
Italy (56.3), Ireland (56.1) and France (55.8) were mid-ranked but all saw improved growth rates.
Spain goes slow
Greece remained at the bottom of the rankings (with 52.2) but this represents the highest rate for nine years. Only Spain saw its rate of improvement slow in August. Its rate of 52.4 represents an 11-month low.
The headline in Spain was a downside surprise, says Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. He attributes the slippage to slower growth in new orders and output.
“The upshot is that expectations for future output and orders rose, and rising work backlogs continued to support higher employment,” he comments.
“The manufacturing PMI also fell in Q3 2016 for no apparent reason, and rebounded so today’s fall could be a seasonal hit. But the headline dip is in stark contrast to the government’s increasingly upbeat forecast that GDP growth will surpass 3.5% year-over-year in 2017.
In Italy, however, the headline was more positive, he notes. Its manufacturing rose to 56.3 in August, from 55.1 in July, due to robust growth in new orders and output. Domestic demand and export orders boosted growth, pushing work backlogs and employment higher.
This headline is in sync with other data showing that the business sector in Italy is in good form, while consumers are facing headwinds due to weakness in real wages, he concludes.
Chris Williamson, chief business economist at IHS Markit, said the summer surge in factory activity suggests rising goods production will support another strong gross domestic product (GDP) reading in the third quarter.
The survey indicates euro area manufacturing output is growing at an annual rate of around 4%. He cautions, though, that the rstrengthening of the euro could curb export growth. Optimism has cooled since earlier in the summer, notably in France.
Companies are also struggling to cope with existing demand, he adds. Backlogs of uncompleted work are rising at the fastest rate for 11 years, and supply chains are being stretched to a degree not seen for over six years.
Capacity issues pushing up input costs
“Capacity issues are translating into both higher input costs and rising factory gate prices as demand exceeds supply for many products. The key question for policymakers is the extent to which these price pressures will feed through to consumers and wages.”