Eurozone factories step up pace as orders flood in

Reuters, LONDON

Tue, Sep 03, 2013 - Page 15

Strong orders for manufactured goods helped eurozone factory activity rise at the fastest pace in over two years last month and led to backlogs of work for the first time since the middle of 2011, a survey showed yesterday.

The eurozone’s nascent recovery may be taking hold as survey compiler Markit said conditions improved across all major economies in the 17-nation bloc bar France.

New orders came in at their quickest rate since May 2011, suggesting the momentum will continue.

Markit’s Manufacturing Purchasing Managers’ Index (PMI) jumped to 51.4 from 50.3 in July — the first month the index had been above the 50 line that signifies expansion since February last year.

The final reading pipped an earlier flash figure of 51.3.

“Although gains are still only modest, companies reported the strongest improvement in business conditions for just over two years, with a pickup in new orders growth suggesting the upturn will be sustained into September,” Markit’s chief economist Chris Williamson said.

The eurozone escaped from a one-and-a-half-year recession last quarter with growth of 0.3 percent, supported by stronger than expected expansions in Germany and France, although a Reuters poll last month suggested growth would be weak for some time.

A sub-index measuring output, which feeds into the wider composite PMI due tomorrow and seen as a good indicator of growth, rose to a 27-month high of 53.4 from July’s 52.3, in line with the flash estimate.

That growth in output is likely to follow through into next month as the new orders index jumped to 53.3 from 50.8 in July, its highest level since May 2011.

For the first time in 27 months factories built up a backlog of work.

The Markit survey comes after data on Friday showed optimism in the eurozone’s economy improved sharply last month although unemployment remained stubbornly high in July, particularly in the bloc’s weaker members.

A Reuters poll last week suggested there was a sizeable chance the bloc’s most vulnerable countries would need more outside help within a year to sort out their finances.

The PMI showed manufacturers reduced headcount for the 19th month last month and at a sharper rate than in July.

“The fact that companies remain reluctant to take on staff — due to the need to cut costs to boost competitiveness and offset rising oil prices — suggests that there’s a long way to go before the recovery feeds through to a meaningful job market improvement,” Williamson said.

Meanwhile, British manufacturers are planning the fastest increase in capital investment in the year ahead since before the financial crisis, a survey showed, suggesting the economy could be heading for a more balanced recovery.

Manufacturers’ association EEF and accountants BDO LLP yesterday said a balance of 24 percent of companies intended to buy machinery and equipment, up from 7 percent in the May poll.

That was the highest reading since 2007 and the second-highest since the quarterly survey began in the mid-1990s.

EEF said investment would also make a greater contribution to economic growth this year and next than in recent years.

Small and medium-sized manufacturers, partly helped by easier access to credit and greater demand for their goods, led the jump in investment intentions.