And so the fallout from the European suicide pact continues.
Overnight we had another round of PMI data and once again the results were woeful. From Markit Economic’s chief economist:
“The Eurozone manufacturing sector’s woes intensified again in July. Output fell at the fastest rate since mid-2009, consistent with the official measure of production falling at a quarterly rate in excess of 1%. Manufacturing therefore looks to be on course to act as a major drag on economic growth in the third quarter, as the Eurozone faces a deepening slide back into recession.
“The July survey is characterised by faster rates of decline in output and new orders, leading manufacturers to cut back on headcounts and inventory holdings and suggesting a fear among companies towards ongoing weakness in the coming months.
“Rates of decline hit the fastest for three years or more in Germany and France, but Spain and Greece continue to stand out in seeing particularly disappointing performances.
“The only country to show any sign of emerging from the downturn so far this year is Ireland, where output is beginning to increase again due to rising exports. The brighter picture from Ireland perhaps sends a message that other countries do not necessarily face the inevitability of deepening downturns if competitiveness can be improved, though the current weakness of global economic growth suggests that all producers face a challenging environment in export markets as well as at home. ”
I’ve noted before that Ireland has the advantage that it’s main export partner is non-European. Most other European countries are not so lucky with many of the European countries being interdependent in regards to trade. The master plan for Europe appears to be implementing varying degrees of internal deflation under a single currency in order to become more export competitive. The problem is if you’re all each other’s trade partners then it simply becomes a race to the bottom. Surpluses somewhere require deficits somewhere else , but slowing demand overall is completely counterproductive.
Tonight we’ll get an answer from the ECB’s governing council on what they intend to do to intervene in the ever deepening crisis. As I said yesterday my expectations are that we will see renewed, but capped, SMP and possibly some word on the use of the EFSF to act in the primary markets. This, however, will do very little in regards to the real economies of Europe as fiscal consolidation still appears to be the master plan. Obviously I hoping for an upside surprise, but Europe has a history of undershooting.
To the PMIs in more detail.
Eurozone manufacturing recession deepens at start of third quarter
- Markit Final Eurozone Manufacturing PMI at 44.0 in July (37-month low, flash estimate 44.1)
- Broad-based weakness, though Ireland bucks downturn trend
- Cost-cutting in focus as falling orders lead to more job losses and lower inventories
The downturn in the Eurozone manufacturing sector gathered momentum at the start of the third quarter. The rates of contraction in output, new orders and employment all accelerated during July.
The final Markit Eurozone Manufacturing PMI® fell to a 37-month low of 44.0, down from 45.1 in June and below the earlier flash estimate of 44.1. The PMI has now signalled contraction for 12 consecutive months. Widespread weakness was seen across the currency region, with almost all of the national PMIs at sub-50.0 levels. Only Ireland bucked the trend, seeing improved business conditions as its PMI hit a 15-month high.
Rates of manufacturing decline in Germany, France and Spain were either at or close to the steepest since mid-2009. Italy recorded the worst overall performance in three months, while Austria slipped back into contraction and business conditions in the Netherlands continued to deteriorate. Greece stayed rooted to the bottom of the PMI league table.
Sharpest falls in output and new orders since April 2009
- Production drops for fourth month running in July
- Job shedding fastest for two-and-a-half years
- Fastest decline in input costs since August 2009
The performance of the German manufacturing sector took another turn for the worse in July, with output and new orders both declining at the sharpest rates since April 2009. This led to a further drop in the seasonally adjusted final Markit/BME Germany Purchasing Managers’ Index® (PMI®) – a composite index designed to give a snapshot of operating conditions in the manufacturing economy – from 45.0 to 43.0 in July, its lowest level since June 2009.
Reduced production volumes have now been recorded in each of the past four months. The steep fall in output levels during July was driven by a marked decline in the investment goods sector. Anecdotal evidence widely attributed lower production to a lack of incoming new work to replace completed projects.
July data highlighted a thirteenth successive monthly contraction of incoming new business in the German manufacturing sector. This is the longest continuous period of falling new orders since the survey began in April 1996. Survey respondents frequently commented on an unwillingness among clients to commit to new spending, largely in response to the uncertain global economic outlook.
New export work continued to decline at a steeper pace than total new business receipts in July. Manufacturers noted shrinking sales in Western Europe, alongside softer demand in Asia and the US. The overall decline in new export work was the steepest since May 2009.
PMI sinks to 38-month low as manufacturing downturn deepens
- Output and new orders fall at sharper rates
- Fastest drop in employment since September 2009
- Input prices decline at steepest pace for almost three years
French manufacturing sector business conditions worsened further in July. The headline Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – fell from 45.2 in June to 43.4. That was its lowest reading since May 2009.
Weighing on the headline PMI figure were weaker contributions from all five of its constituent indices. Output, new orders, employment and stocks of purchases all declined at sharper rates, while a more marked shortening of supplier delivery times was signalled.
Manufacturing production fell for a fifth consecutive month in July, with the pace of decline accelerating to the fastest since April 2009. Output was lowered in response to a further substantial decrease in the volume of incoming new orders. Data suggested that domestic demand remained the principal area of weakness, although export sales showed a deteriorating trend, declining at the fastest pace since November 2011.
PMI falls to three-month low on marked drop in employment levels
- Rate of job losses sharpest since October 2009
- Output falls at sharp pace unchanged since June
- Input prices drop at fastest rate in three years
Manufacturers in Italy continued to face a challenging operating environment at the start of the third quarter. A further contraction in demand led to lower output levels and the sharpest reduction in employment for 33 months, with a sharp and accelerated decrease in backlogs of work underlining the degree of excess capacity in the sector.
The seasonally adjusted Markit/ADACI Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – dipped to a three- month low of 44.3 in July, down from June’s reading of 44.6. The headline index has posted below the neutral mark of 50.0 – signalling deteriorating business conditions – throughout the past year, and was below the average recorded over the second quarter as a whole.
July saw output levels at manufacturers in Italy fall markedly, and at a rate that was equal to that registered in the preceding survey period. The month-on-month decrease in goods production was the eleventh in the past year.
Where lower output levels were recorded in the sector, this was often associated by respondents with falling new order inflows. New work decreased at the slowest rate since March, though still sharply overall. The latest contraction in new export orders was also weaker than in each of the previous three months, primarily reflecting a marked rise in international demand for Italian-produced consumer goods.
Further substantial reduction in manufacturing output
- Output and new orders continue to decline sharply
- Rate of job shedding accelerates
- Input costs fall for second month running
Operating conditions for Spanish manufacturers continued to deteriorate in July, with further sharp falls in new orders, output and employment recorded. Input costs decreased for the second month running amid falling demand for raw materials and firms continued to lower their output prices in an attempt to boost demand.
The seasonally adjusted Markit Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – posted 42.3 in July. Although the reading was higher than the 41.1 recorded in June, it still represented a sharp deterioration of business conditions in the sector.
Spanish manufacturing production decreased for the fifteenth consecutive month in July. The rate of decline remained substantial, despite easing to the weakest in three months. Where output fell, this was largely reflective of a further decline in new orders.
Total new business declined sharply again, with respondents highlighting domestic markets as a particular source of weakness. That said, new export orders also fell, extending the current period of reduction to 13 months. Falling new orders was the main factor behind another depletion of backlogs of work. Outstanding business has fallen throughout the past year-and-a- half.
Operating conditions continue to deteriorate in July
- PMI remained well below 50.0 no-change mark
- Output, new orders and employment all fall at steep rates
- Input prices continue to rise, but output charges cut sharply
Operating conditions in Greece’s manufacturing sector deteriorated again in July as output, new orders and employment all continued to fall at steep rates. Liquidity and credit constraints remained apparent, placing a limit on purchasing activity and leading to a further sharp depletion of stocks.
The Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single- figure snapshot of the performance of the manufacturing economy – recorded 41.9 in July. That was up from 40.1 in June, but still well below the 50.0 no-change mark that separates growth from contraction. The PMI has now registered below 50.0 for thirty-five successive months.
Panellists indicated another steep reduction in new orders received during July. The impact on market demand of the financial crisis and recession in Greece continued to be felt, according to the latest anecdotal evidence.
New export orders also continued to fall sharply during the latest survey period. The eleventh successive monthly reduction in export sales was reported to reflect tough operating conditions in foreign markets.
As new order volumes continued to deteriorate, manufacturers in Greece again pared back production. July’s survey indicated that the rate of contraction was again marked, despite easing since the previous survey period.
Fastest rise in manufacturing new orders since April 2011
- Output rises as new order growth hits 15-month high
- Stocks of purchases increase for first time since November 2007
- Second successive fall in input costs
Business conditions in Ireland continued to improve during July, partly thanks to accelerated growth of new orders. Both output and employment also expanded again during the month. The recent drop off in price pressures continued as input costs decreased for the second month running.
The seasonally adjusted NCB Purchasing Managers’ Index® (PMI®) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – posted 53.9 in July, up from a reading of 53.1 in June. The index has now risen in each of the past three months, pointing to progressively stronger improvements in operating conditions.
Manufacturing output rose solidly again in July, extending the current sequence of growth to three months. Higher new orders was reportedly the main reason for the latest increase in production, with rising new export business highlighted in particular by respondents.
New orders from abroad increased substantially, with the rate of expansion the sharpest since May 2011. Anecdotal evidence suggested that non- European markets had been a particular source of growth. Total new orders also rose at a faster pace in July, with the latest increase the steepest in 15 months.