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Euro area manufacturing continued to contract

Christian Fernsby |
The euro area manufacturing sector continued to contract during October, according to the latest PMI data from IHS Markit.

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After accounting for usual seasonal influences, the IHS Markit Eurozone Manufacturing PMI recorded 45.9 in October.

Although up from September’s 45.7 and the earlier flash reading, the index remained well below the 50.0 no-change mark to indicate a rate of contraction that was the second-sharpest in the past seven years.

All three market groups covered by the survey once again recorded a deterioration in operating conditions on the previous month.

Investment goods and intermediate goods producers both registered marked contractions, compared to consumer goods where the rate of deterioration remained marginal.

Germany remained the principal source of manufacturing weakness in the region, despite experiencing a slight improvement in its respective PMI.

Austria also registered another month of sharply deteriorating operating conditions, whilst Spain saw its manufacturing PMI fall to a six-and-a-half year low.

Italy also recorded a sub-50.0 PMI reading, whilst the Netherlands, Ireland and France barely expanded.

Greece was again the top performer, although growth here was the weakest in the past four months.

Sharply falling volumes of incoming new orders remained a key depressor of overall operating conditions during October.

Whilst not as severe as September’s near seven-year record, the drop in new orders remained notable and extended the current period of contraction to over a year.

Demand weakness was apparent across domestic and international markets.

Export orders fell during October to a considerable degree, again led by sharp reductions in Austria and Germany.

Against the backdrop of deteriorating order books, euro area manufacturers made further cuts to both their output and purchasing activity in October.

Whilst rates of decline eased since September, they nonetheless remained historically marked.

Firms also made notable inroads into their backlogs of work to extend the current period of contraction to 14 months.

With evidence of continued spare capacity in the sector, job cuts were registered for a sixth month in a row.

Moreover, the degree of job shedding was the sharpest recorded by the survey since the start of 2013.

Employment fell to the greatest degree in Germany, where the rate of job shedding was the sharpest in nearly a decade.

There was a renewed effort amongst manufacturers in October to reduce their stock holdings.

Input inventories were lowered to the greatest degree since March 2013, whilst finished goods inventories deteriorated to the greatest degree for over three years.

On the price front, average input costs fell the most since March 2016 during October.

Commodities such as copper and steel, plus plastics, were amongst the inputs reported to be down in price.

Manufacturers responded by making downward adjustments to their own charges for a fourth month in a row.

Finally, economic and political uncertainties (such as Brexit and US trade policy) continued to weigh on sentiment during October.

Although expectations were at their highest for three months, confidence remained historically low.

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