Manufacturing Index Dips for First Time in Nine Months

02 August 2002

Manufacturing activity 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 – dipped slightly in July, according to the Reuters Eurozone Purchasing Managers Index.

The PMI, an indicator designed to provide an overall view of manufacturing conditions within the Eurozone, remained above the 50.0 ‘no change’ level in July to register an expansion of manufacturing activity for the fourth month running. However, a decline from June’s sixteen-month high of 51.8 to 51.6 signalled an easing in the pace of improvement to the weakest since May.

Nevertheless, the continued expansion of Eurozone manufacturing, although growing at only a modest pace, represents a significant contrast to the [survey] record pace of deterioration seen last October.

The key PMI data for July are …

Manufacturing Output
The index recorded 53.5 in July, unchanged from June. The index therefore registered an increase in output for the sixth consecutive month following a nine-month period of contraction last year, with the rate of growth the same as that recorded in June (which had been the fastest since February 2001). Output rose in all main national economies, but performance by country varied significantly. Growth in fact picked up in Austria, France, Germany and Italy, but slowed in Greece, Ireland, the Netherlands and Spain. The fastest growth was recorded in France, followed by Greece and then Ireland. The slowest growth was again seen in Germany, followed by the Netherlands and then Italy.

Manufacturing Employment
At 49.2, the employment index remained below the ‘no change’ level of 50.0 to register an overall drop in staffing levels for the fourteenth month running. The rate of job losses eased for the sixth straight month, albeit to a pace markedly weaker than seen at the start of the year. The resulting drop in employment was the smallest for eleven months. Employment in fact rose in France, Ireland and Greece, but these rises were offset by falling employment levels in all other main national economies. The sharpest decline was seen in the Netherlands.

Manufacturing Input Prices
The input prices index rose from 57.4 in June to 58.7 in July, indicating the fourth consecutive monthly rise in input costs (following nine months of falling prices) and the fastest rate of increase since January 2001. All main national economies reported higher input costs. The sharpest rise was seen in France, followed by Ireland and the Netherlands. The weakest increases were seen in Germany, Austria and Greece. Any reduction in the cost of imported goods due to the appreciation of the Euro was countered by a general hardening of global commodity prices as demand picked up, with packaging, plastics, steel and paper being particularly widely reported as having risen in price.

Suppliers’ Delivery Times
Suppliers’ delivery times lengthened for the fourth month running in July as a further increase in purchases of inputs by manufacturers put pressure on suppliers’ capacity and shortages of certain goods developed. Stocks of purchases and finished goods both fell again in July, however, as firms focused on cost reduction.

The eight Eurozone nations between them account for an estimated 92% of manufacturing activity within the zone. The PMI provides the first indication each month of Eurozone business conditions, based on data collected from purchasing executives in around 2,500 companies. It is compiled by NTC Research and sponsored by Reuters.

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