Eurozone Economy: Manufacturing Up, Employment Down

05 January 2004

The Reuters Eurozone Manufacturing Purchasing Managers Index for December reveals an improvement in manufacturing activity for the fourth consecutive month, the index rising from 52.2 in November to 52.4 in December. Any figure above the 50 median indicates expansion.

In general, however, output and order book growth slowed across the Eurozone -- the eight largest European economies (Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain) within the twelve-nation euro currency zone.

Countering this disappointing trend -- caused largely by weaker export growth and supply chain capacity constraints -- was the marked improved in German business conditions.

The key elements of December's seasonally adjusted indices are …

Manufacturing Output
The Manufacturing Output Index rose marginally from 54.4 in November to 54.5, marking the fourth successive monthly increase in production and the sharpest rate of expansion since January 2001. Output rose in all countries surveyed, with the fastest growth again seen in Austria. However, the main stimulus to faster Eurozone output growth was provided by Germany, which saw output rise at the steepest rate since February 2001. In contrast, slower growth was recorded in France, Italy, Spain, the Netherlands and Ireland.

New Orders
The New Orders Index increased from 54.9 in November to a thirty-eight month high of 55.1 in December. New orders have now risen for five straight months, with the rate of increase accelerating over this period. For the second month running, new orders rose in all countries surveyed except Greece.

Suppliers’ Delivery Times
Manufacturers also reported rising instances of growth of both output and new orders being constrained by supply chain bottlenecks. The Suppliers’ Delivery Times Index signalled a lengthening of lead times for the fifth successive month, with the incidence of delays the highest for three years as suppliers struggled to meet manufacturers’ demand for raw materials.

The Employment Index was unchanged at 48.5. Despite finding increased evidence of capacity constraints, manufacturers again cut staffing levels in December. Job cuts were often associated with the need to improve competitiveness at home and abroad in the face of an uncompetitive exchange rate. Total Eurozone manufacturing employment has fallen continually since May 2001.

Input Prices
The Input Prices Index rose from 53.0 in November to 53.6. Prices rose for the third month running in December, with the rate of inflation picking up to an eight-month high. Although the strength of the euro against the dollar helped to cut the cost of dollar denominated imported materials, stronger global demand for many key materials (notably metals) was reported to have pushed up prices.

Eurozone Manufacturing Indexes are based on surveys carried out in Germany, France, Spain, Italy, Ireland, Greece, Austria and the Netherlands. These countries together account for an estimated 92% of Eurozone manufacturing activity.

The PMI data is provided by around 3,000 manufacturers across the euro area. It reflects hard data on recent changes in activity levels rather than business sentiment or expectations. As such, the index provides the earliest indication of actual business conditions.

Data sourced from: NTC Research; additional content by WARC staff