The final Markit Eurozone Manufacturing PMI (Purchasing Managers' Index)  for September rose above the flash estimate of 49.0 to 49.3, from 48.2 in August,  to signal a further slowing in the rate of deterioration in manufacturing sector business conditions. The PMI has now been below the no-change level of 50.0 for 16 successive months, but the rate of decline has eased over the past seven months such that the latest deterioration was the smallest seen in the past 16 months.

Output increased for the second successive month, rising by more than indicated by the flash estimate and showing the strongest monthly expansion since last May – a marked contrast to the record rate of contraction seen back in February.

By far the strongest rise in output was seen in France, where the rate of growth hit a near three-year high. Output also rose in Germany, the Netherlands, Austria and to a lesser extent Greece, but in all cases the rates of increase slowed compared with August. Spain meanwhile saw output decline at a faster rate in September (it had posted a marginal increase in July). Italy and Ireland saw rates of contraction slow to 16- and 19-month lows respectively.

Faster growth of new orders in Germany and France drove a second successive increase in new orders for the Eurozone as a whole, which rose at the fastest pace since November 2007. The overall pace of growth remained only modest, however, as rates of increase slowed in the Netherlands and Austria and declines continued to be recorded in all other countries.

Domestic demand continued to provide the main stimulus to order book growth, as new export orders showed only a very marginal increase for the second successive month (though this represented an improvement on the small decline registered by the September flash estimate). Rising export sales in the Netherlands, France, Austria, and to lesser extents Greece and Ireland, were offset by falling exports in Germany, Spain and Italy. Intermediate goods producers again led the upturn in terms of both output and new orders. New orders for investment goods showed the strongest rise since January of last year, though production of these goods fell slightly, but demand for consumer goods continued to decline.

Stocks of finished goods fell at a historically strong pace again, albeit by less than in August, causing the new orders:inventory ratio to remain unchanged on August’s 32-month high – consistent with further output growth in coming months.

Employment fell sharply (and by slightly more than indicated by the flash) as firms cut costs. Job losses ran at a rate unchanged on August but well below the record seen in March. Headcounts were cut in all countries covered by the survey, with Germany and Austria leading the decline.

The reduced rate of job losses compared to earlier in the year tallies with the slower development of spare capacity, as signalled by the smallest fall in backlogs of work for 16 months in September.

Capacity at suppliers was reported to have been stretched, with delivery times showing the greatest lengthening for 16 months in a marked change to the quicker delivery times seen earlier in the year.

Longer lead times corresponded with a sharp easing in the rate of decline of input prices to near-stabilisation, as some suppliers were able to push up rates. Prices even rose in some countries. Prices charged fell at the weakest pace for nine months, the rate of decline moderating in all countries except Austria as firms sought to limit the squeeze on profit margins.

Commenting on the PMI data, Markit Chief Economist, Chris Williamson said: “The final Eurozone Manufacturing PMI sends mixed signals. While output and orders rose at increased rates, the pace of expansion was lacklustre, held back by signs of momentum waning in some countries, notably Germany, the Netherlands and Spain. Exports also failed to show anything more than a very marginal rise as competitiveness continued to be hit by the strong euro and manufacturers were again forced to reduce their selling prices to stimulate sales. Job losses were widespread as firms struggled with the resulting squeeze on profit margins, highlighting the fragility of the recovery.”

The Eurozone Manufacturing PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of around 3,000 manufacturing firms.