Eurozone manufacturing PMIs were out Monday morning
making a sad frowny face, with the earlier flash estimate of 47.7 confirmed for March. The composite output index, that also contains services activity, had a flash estimate of 48.7. Confirmation or revision of the flash composite, and services, will be out on Wednesday.
In the meantime though, here’s Markit’s chief economist Chris Williamson to give a bit of colour on the state of the manufacturing sector (emphasis ours):
Eurozone manufacturers suffered a miserable March, with a renewed downturn in production wiping out marginal gains seen in the first two months of the year. Prospects for April also look poor, with companies reporting steeper rates of decline for both new orders and backlogs of work. At the same time firms saw their production costs rise sharply, largely as a result of high oil prices. Increasing numbers of firms therefore resorted to cutting employment to control costs, meaning employment fell overall at the fastest rate for two years.
Just how bad a picture the PMIs paint of employment in manufacturing can be seen in the below chart, as well as by the uptick in eurozone unemployment (across all sectors) for February to 10.8 per cent, the highest in 14 years, also released this Monday morning.
Germany’s payroll index is still a touch above 50, but the gain is the smallest registered in two years, and France has moved back below 50 for the first time in 4-months.
Here’s a country-by-country breakdown of the headline PMI number, along the overall trend as it compares to actual manufacturing production (versus that reported by the PMI panels):
Compare and contrast Spain and Greece. Both countries saw contractions in their manufacturing sectors, but for one (Greece) this contraction was a 3-month high, while for the other (Spain) it was a 3-month low.
Greece’s February reading was a brutal 37.7, and although March saw an increase in the overall index, the payroll component was at the lowest in three years (as per the earlier chart). Paul Smith of Markit had this commentary:
Although coming off survey record falls in March, output, new orders, and purchasing activity all deteriorated at steep rates as the operating environment for Greek manufacturers remained challenging to say the least.
Liquidity and supplier credit remained at the forefront of the issues facing the sector, with manufacturers struggling to secure inputs from vendors but at the same time remaining wary in releasing goods to clients amid difficulties in collecting payment.
With little sign of frozen credit lines thawing, and austerity continuing to severely impact on general demand, it remains difficult to see how Greece’s manufacturing sector will be able to snap the current period of contraction any time soon.
It does have a certain air of inevitability. Here’s series of the headline PMI for additional historical context:
Spain, meanwhile, had a particularly discouraging reduction in new orders. As Markit reports, the decrease was “mainly reflecting the weakness in domestic demand in Spain”. The employment situation also looks pretty dire (see again above chart). From the press release:
As new orders decreased sharply, manufacturers worked through outstanding business and restructured their workforces accordingly. Employment has risen in only one month since September 2007.
Firms signalled a second successive increase in input costs in March, with the rate of inflation remaining strong. Higher prices for fuel and other oil-related products including plastics were reported. Metals were also cited as having risen in cost.
And again, some context:
Stepping away from the periphery though, it was interesting to see the final number for France differ so much from the flash estimate; something which was noted by Lasse Holboell Nielsen at Goldman Sachs. The flash had been for 47.6 and the final print was 46.7 — a 33-month low as per the table above.
The average difference between the flash estimate and final read, in absolute terms, as reported by Markit for the France manufacturing PMI historically, is 0.4, making a 0.9 difference quite the outlier. There may be some freak chance in this, but it also could indicate rather rapid changes in business conditions and sentiment.
As a reminder, the February PMI for France had been a much rosier 50.0. From Jack Kennedy at Markit about the abrupt turnaround:
After showing a flicker of life in February, the French manufacturing sector sank back into contraction in March. Output was dragged lower by the sharpest drop in new orders for almost three years, with feeble domestic demand the main culprit.
Coming in even weaker than the earlier flash estimate, March’s final French manufacturing PMI data point to an increased risk that first-quarter GDP will show a slight decline.
Not a great time to be in denial then…