Eurozone Manufacturing Upturn Slows Further in May

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The upturn in the Eurozone manufacturing sector showed further signs of cooling in May. Rates of expansion in output and new orders both slowed, with increases in employment and backlogs of work also losing momentum. Input cost inflation rose for the first time in four months, whereas the rate of increase in output charges slowed further.

Key findings:

• Final Eurozone Manufacturing PMI at 55.5 in May (Flash: 55.5, April Final: 56.2)
• Slower growth of output, new orders, new export business and employment     
• The Netherlands, Germany and Austria remain strongest performing nations

The final IHS Markit Eurozone Manufacturing PMI posted a 15-month low of 55.5 in May, down from 56.2 in April and unchanged from the earlier flash estimate. The rate of increase has eased in each of month since hitting a record high in December. The PMI has signalled expansion for 59 months in a row and remained above its long-run average (51.9).

The upturn remained broad-based by sector, with growth recorded across the consumer, intermediate and investment goods industries. However, rates of increase eased in all three cases. The steepest expansion was again registered in the investment goods category and the weakest in consumer goods.

All eight of the nations covered saw manufacturing operating conditions improve during May. Growth was led by the Netherlands, Austria and Germany, despite all three seeing their respective rates of expansion slow. Spain and Italy also saw weaker growth, while accelerations were registered in France, Ireland and Greece.  

Manufacturing production and new orders both rose further during May, although rates of increase were the weakest in around one-and-a-half years. New export business also continued to improve, albeit at a weaker pace. The increases in all three variables remained widespread, with growth seen in all of the nations covered by the survey. 

The outlook for the manufacturing sector remained positive in May, with companies reporting that they expect output (on balance) to be higher in one year’s time. That said, the degree of optimism slipped to its lowest since September 2016.

Capacity constraints remained evident at both manufacturers and their suppliers during May. Manufacturing backlogs of work increased for the thirty-seventh successive month, although the pace of increase eased to its weakest since September 2016. Supplier delivery delays remained widespread and among the highest seen in the survey history, although the incidence of delays was the lowest since last September.

The ongoing upturn in the manufacturing sector and associated rise in outstanding business encouraged companies to further expand employment during May. Staffing levels increased for the forty-fifth consecutive month. However, similar to the trends in output and new work, the rate of jobs growth slipped to a 14-month low.

Staffing levels were raised in all of the nations covered by the survey, with the steepest increases in Austria, the Netherlands and Germany. However, only France, Spain and Greece saw employment rise at a faster pace than in April.

May saw the rate of input price inflation faced by Eurozone manufacturers remain strong and quicken for the first time since January. In contrast, output price inflation eased to a five-month low but nonetheless remained well above its historical average. Germany registered the sharpest increase in both input costs and output prices during the latest survey month.

Commenting on the final Manufacturing PMI data, Chris Williamson, chief business economist at IHS Markit said:

“The Eurozone manufacturing sector reported its weakest expansion for 15 months in May. Some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in coming months.

“Slowing export sales have been a key drag on both production and order book growth, with the May survey indicating that new export orders rose at the weakest rate for nearly two years, linked in part to the appreciation of the euro alongside reports of weakened demand for imports from key markets, notably the US.

“There are signs that the soft patch has further to run. Despite the production trend slowing markedly in recent months, the order book slowdown has been even sharper. Output has consequently grown at a faster rate than new orders in each of the past six months, which suggests that manufacturers will come under pressure to rein-in production and staffing levels in coming months unless demand revives. Not surprisingly, manufacturers’ expectations of future production have sunk to a 20-month low, underscoring the gloomier economic picture.”

About IHS Markit

IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.

About PMI

Purchasing Managers’ Index (PMI) surveys are now available for over 40 countries and also for key regions including the eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more click here.