Eurozone: Manufacturing Declines for Fifth Consecutive Month

03 September 2001

The Reuters Eurozone Purchasing Managers Index – an indicator designed to provide an overall snap-shot of manufacturing conditions within the Eurozone – remained below the critical no change mark of 50.0 in August to signal the fifth consecutive monthly contraction of the Euroland manufacturing economy. A rise in the Index (from 47.3 to 47.6 – the first Index rise since April last year) suggested a slight moderation in the overall rate of manufacturing contraction

* The recent period of contraction of the Eurozone manufacturing economy and August’s marginal easing in the rate of decline indicated by the PMI, largely reflected concomitant trends in the PMI’s main component series – output, new orders and employment.

* The overall volume of incoming new orders received by Euro area manufacturers continued to decline during August, as firms reported a continued weakening of demand both within the Eurozone and from outside of the region. Although remaining well below the no change mark of 50.0 in August, the Reuters Eurozone New Orders Index rose slightly from July’s recent low suggesting a modest easing in the overall rate of contraction of new business. However, with the exception of Greece where orders were broadly unchanged through the month, all the Euro member countries covered by this survey recorded a contraction of new orders in August. In response to weaker order books, manufacturers again adjusted down production levels during the month, albeit at a fractionally slower rate than in July.

* In order to reduce some of the excess capacity that has arisen from weaker order books in the industry, firms cut back employment levels for the third month running in August. Nevertheless, the rate of job shedding was again only marginal, and slower than in the previous month.

* Despite the marginal easing in the rate of contraction of both output and new orders, manufacturers continued to run down their stocks of inputs at an increasing rate, in attempts to reduce inventory overhang. Stocks of purchases fell in August at the sharpest pace in the four-and-a-quarter year survey history. With firms continuing to satisfy an increasing proportion of current production requirements from existing stocks and therefore reducing their demand for additional inputs, suppliers were again able to re-direct space capacity towards meeting delivery schedules. As a result, suppliers’ lead-times improved for the fifth month in succession.

* Finally, weaker demand for raw materials and excess supply of certain commodities were again primarily responsible for lower input prices during the month, although a number of respondents also mentioned that the recent appreciation of the Euro had helped bring costs down. Input prices fell for the second successive month in August and at a faster rate than in July.

News source: NTC Research