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| Source: NTC Economics |
Key indicators for February:
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Flash Eurozone Composite Output PMI - Purchasing Managers' Index(1) - at 52.7 (51.8 in Jan), 2-month high
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Flash Eurozone Services Activity Index(2) at 52.3 (50.6 in Jan), 2-month high
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Flash Eurozone Manufacturing PMI(3) at 52.3 (52.8 in Jan), 4-month low
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Flash Eurozone Manufacturing Output Index(4) at 53.4 (54.0 in Jan), 4-month low
The RBS/NTC Flash Eurozone Composite Output Index, based on around 85% of normal monthly survey replies, rose from a 33-month low of 51.8 in January to 52.7 in February.
Although signalling an improvement in the rate of growth of private sector economic output following the particular weakness seen in late-January arising from the financial market turmoil, the latest reading was the second lowest recorded in the past 32 months.
The upturn in February reflected a pick up in the rate of increase of services activity from the near-stagnation seen in January. However, the rate of services growth remained well below the peak seen last July and was the second-weakest expansion recorded over the past four and-a-half years. Manufacturing output growth meanwhile slowed to a four-month low, running well below last year's peak to register the second-weakest increase in the past 30 months.
Growth of new business improved from the near-stagnation recorded in January, rising to a three-month high. The pace nevertheless remained substantially below that seen prior to the slowdown of last autumn. The improvement was entirely due to a return to modest growth in the service sector from the marginal decline seen in January. In manufacturing, on the other hand, growth of new orders deteriorated to show only a slight rise, registering the second smallest increase in the past 32 months. Of particular note, new export orders* barely rose, seeing the smallest increase for 33 months as firms struggled to win sales in the face of weak economic growth in key export markets and a strong euro.
Backlogs of work were largely unchanged in February. No change in backlogs was recorded in both manufacturing and services, suggesting both sectors continued to cope with current inflows of new business without straining operating capacity.
Employment growth accelerated slightly, climbing to a three-month high but remaining below the average recorded throughout last year. Services continued to record a stronger rate of job creation than manufacturing, with the latter seeing the rate of growth unchanged on January while a three-month peak was seen in the service sector.
Input price inflation eased slightly from January's 17-month high, yet stayed above the average seen over last year. Contrasting trends were seen by sector, with the rate of increase hitting a seven-month high in manufacturing but slipping to a four-month low in services. High oil, energy and food prices continued to provide the main stimulus to input cost inflation.
Output price inflation slowed to a four-month low, though again trends diverged by sector. An 11-month high rate of increase in manufacturing contrasted with a 15-month low in services.
While many manufacturers sought to pass higher fuel and food costs on to customers, service sector companies generally struggled to raise charges due to weak demand.
Commenting on the flash PMI data, RBS Head of Euro Area Economics, Jacques Cailloux said:
“The PMI suggests that business conditions have recovered slightly from the turmoil seen in late-January, when the equity market falls may have led to a postponement of purchasing by consumers and businesses. However, a more reliable guide to the underlying trend is perhaps provided by the average of the data over the latest three months, which showed that the trend in February was the weakest for over two-and-a-half years. Some easing of inflationary pressures is also suggested by the data, especially in services, but clearly rising food and energy prices remain a concern.
Our expectation therefore remains that theECB will eventually lower its key interest rates as economic growth continues to weaken in coming months, but the fact that the particularly weak PMI readings for January have not spilled over into February, raises the chance that it may not be before late-Q2 that we see a cut.”
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| Source: NTC Economics |
The Eurozone PMI (Purchasing Managers' Index) is produced for RBS Global Banking & Markets by NTC Economics and is based on original survey data collected from a representative panel of 5000 companies based in the Eurozone area manufacturing and service sectors. The flash estimate is typically based on approximately 85-90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.
The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.
Key indicator notes
1. The Composite Output PMI is a weighted average of the Manufacturing Output Index and the Services Business Activity Index.
2. The Services Business Activity Index is the direct equivalent of the Manufacturing Output Index, based on the survey question “Is the level of business activity at your company higher, the same or lower than one month ago?”
3. The Manufacturing PMI is a composite index based on a weighted combination of the following five survey variables (weights shown in brackets): new orders (0.3); output (0.25); employment (0.2); suppliers' delivery times (0.15); stocks of materials purchased (0.1). The delivery times index is inverted.
4. The Manufacturing Output Index is based on the survey question “Is the level of production/output at your company higher, the same or lower than one month ago?”
