Growth of Eurozone manufacturing output and new orders slipped in February. Input costs rose sharply. The Eurozone Manufacturing PMI recorded 52.5 in February, a level unchanged on the high seen in January. The latest reading registered an improvement in manufacturing business conditions for the sixth month in a row. However, growth of both output and new orders slowed slightly during the month. Employment meanwhile fell at a marginally faster rate as firms sought to boost productivity in the face of the strong euro and sharply rising input prices. The PMI is based on information provided by around 3,000 manufacturers across the euro area. It reflects hard data on recent changes in activity levels rather than business sentiment or expectations. As such, the index provides the earliest indication of actual business conditions.
The seasonally adjusted Eurozone Manufacturing Output Index registered 54.3 in February, down marginally from 54.6 in January, to suggest that growth of production had continued at a similar robust rate to that recorded during the previous three months. At a level above 50.0, the index registered an increase in output for the sixth successive month. Output rose in all countries surveyed, with the fastest growth again seen in Austria, followed by Ireland and then Germany (see chart). The rate of increase improved in Ireland, Germany, Spain and Greece, but slowed in all other countries. Italy again recorded the weakest rise in production. The expansion of production was driven by an increase in new orders for the seventh straight month in February. Having accelerated in January, the rate of increase slipped in February to a four-month low. The seasonally adjusted New Orders Index fell from 55.4 in January to 54.6. The easing was due primarily to a downturn in growth of new export orders for the third month running, linked in turn to the sustained strength of the euro against the US dollar. All nations reported growth of new orders in February. For the first time since early 1998, the strongest increase was recorded in Germany, followed by Ireland and then Spain and Austria. However, only in Spain, Ireland and Greece did the rate of growth of new orders improve during the month. The weakest rise in new orders was seen in Italy.
Despite the continued growth of new orders, the seasonally adjusted Employment Index fell from 48.4 in January to 48.1, registering a drop in staffing levels for the thirty-third consecutive month and the sharpest rate of contraction for four months. Only Austria, Ireland and Greece reported higher employment, while the steepest rate of decline was again seen in the Netherlands. Of note, the rate of job losses in Germany eased to the weakest seen since manufacturing employment began falling in Germany back in June 2001. This easing in the rate of decline contrasted with increased job losses in France and Italy. The amount of goods purchased by manufacturers rose for the fifth successive month in February, but the rate of increase slowed slightly (and purchasing even fell in Italy) due to concerns over the sustainability of growth of order books and shortages of certain key inputs. Supply shortages were reflected in a lengthening of suppliers' delivery times for the seventh month in a row. The incidence of delays accelerated sharply, blamed on rising numbers of suppliers being unable to cope with the increased demand for goods from manufacturers world-wide. Raw material prices rose strongly in February. The Input Prices Index rose from 54.6 in January to 59.4, signalling the strongest rise in prices for eleven months. The rate of input price inflation accelerated in all countries surveyed except Greece. Higher prices were most commonly attributed to demand exceeding supply. Metals and electronics components were particularly widely reported to have risen in price.
NOTES ON COMPILATION
The Eurozone Manufacturing Indexes are based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands covering approximately 92 percent of Eurozone Manufacturing Activity. The Eurozone Purchasing Managers Index (PMI) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stocks of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction. All indexes referred to in this release are seasonally adjusted.///