The Reuters Eurozone Purchasing Managers Index – regarded as a bellwether indicator of European economic prospects – posted a new series low in October.

The PMI (in which 50 = no change) recorded 42.9 for the month, down sharply from September’s previous low of 45.9, as the overall Eurozone manufacturing economy contracted for the seventh straight month.

Although on a general downward trend since April 2000, in line with the general global economic slowdown, survey responses indicated that the extent of October’s decline had been exacerbated by the fall-out from the events of September 11. The report’s main findings are …

• The latest decline in the PMI was driven primarily by further marked contractions in output and new orders. However, sharper contractions in both employment and stocks of purchases also helped drag down the index. In fact, the contractions in employment and stocks of purchases were the sharpest in their respective series’ histories. Furthermore, the Delivery Times Index (which is inverted before its inclusion in the PMI) posted a series’ high, which further dampened the PMI level in October.

• The Reuters EurozoneNew Orders Index fell to a new low of 41.0 in October (from 44.3 in September) to signal a further sharp contraction in demand. Weak economic activity in the Eurozone and the US coupled with faltering consumer and business sentiment following September’s terrorist attacks were the prime reasons given for the latest drop in order books. Germany recorded the strongest contraction in order books during the month, closely followed by Italy and France. In reaction to the sustained downturn in overall demand, manufacturers again cut back production aggressively, as indicated by a fall in the Reuters Eurozone Output Index from 46.6 in September to 43.0 in October – the lowest level recorded in the near four-and-a-half year survey history.

• Eurozone manufacturing employment declined markedly through October, as signalled by a Reuters Eurozone Employment Index reading of 45.2. Manufacturing employment has now been in decline for five consecutive months on the back of weak order books. At a national level, employment fell in all of the component countries covered, with the exception of Greece. The sharpest declines in employment during the month were found in France and Austria.

• In response to falling production requirements and weaker order books, manufacturers again reduced the total quantity of raw materials they held in stock. In fact, manufacturers depleted inventories of inputs for the tenth time out of the past eleven months in October and at the fastest rate recorded by the survey to date. With many manufacturers running down stocks of raw materials during the month, pressure on suppliers’ capacity was further relaxed. As a result, suppliers’ delivery times improved at the fastest rate since the survey began June 1997.

• A sharp drop in demand for raw materials together with lower oil prices and a slight appreciation of the Euro helped bring down input prices at the sharpest rate seen since February 1999. Input prices have now fallen for four successive months.

The indices are based on surveys conducted in Germany, France, Spain, Italy, Ireland, Greece, Austria and the Netherlands – which together account for an estimated 92% of Eurozone manufacturing activity. The data is collected from purchasing executives in around 2,500 companies.

News source: NTC Research