Euro area’s manufacturing activity continues to weaken in January, but at slower rate; PMI index rises to 47.9

Euro area’s manufacturing operating condition’s continued to weaken in January; however at a markedly slower pace. On a seasonally adjusted basis, the IHS Markit Eurozone manufacturing PMI index rose to 47.9 from December’s 46.3. Even if the index has remained below the 50.0 no-change mark for 12 straight months, the latest reading was the highest since April 2019. Market groups data hinted that the consumer goods category continued to be the strongest-performing in January, recording marginal growth for the second straight month. On the contrary, the intermediate and investment goods sectors continued to shrink, although rates of fall softened in each instance.

There was a widespread rise in national PMI figures in January, with all eight nations covered recording higher readings compared to December. Greece was the strongest-performing, with growth reaching a five-month high. Ireland and France were the other two nations to see growth, with paces of growth modest in each case. Germany was the weakest performing nation again, in spite of its PMI reaching an 11-month high. Modest falls in operating conditions were seen in Italy and Spain, whilst Austria and the Netherlands recorded marginal falls.

Euro area manufacturing production and new order levels both continued to fall in January 2020, although in each case at weaker rates than at the end of 2019. The modest fall in output extended the current downturn to 12 months, whilst new orders have deteriorated continuously since October 2018. However, the pace of fall in new work was the slowest for more than a year, aided partially by a marginal drop in new export sales. January data gave evidence of spare capacity in the manufacturing economy with backlogs of work cut for a seventeenth straight month, albeit to the softest degree since February 2019.

Losses of job were also recorded for the ninth straight month and, whilst not falling to the same degree as December’s near seven-year record, the pace at which employment dropped continued to be marked. Germany led the way in terms of job shedding, followed by Spain where employment fell to the greatest extent for more than six years. Euro area manufacturers also continued to make cuts to their purchasing activity, although consistent with trends for output and new orders, the fall in utilising activity was the softest in 11 months. Firms continued to hint at a preference for utilizing inventories wherever possible, with the pace of destocking in finished goods the sharpest in almost three-and-a-half years.

Average lead times continued to rebound meanwhile, shortening for an 11th straight month, and ongoing supply-side slack weighed on input prices. According to latest data, input costs dropped for an eighth straight month and afforded manufacturers further room to lower their own charges.

January’s survey hinted at another drop in output prices, maintaining a trend that has been clear since last July. Looking ahead to the next 12 months, sentiment regarding the future jumped at the beginning of 2020 to its highest level since August 2018. The rebound in confidence was also widespread, with positivity led by Greece, Ireland and the Netherlands. Optimism stayed the lowest in Austria and Germany in spite of reaching 16- and 17-month highs respectively.