Source: Markit Economics

The Flash Eurozone Composite Output Index, produced by Markit Economics, and based on around 85% of normal monthly PMI (Purchasing Managers' Index) survey replies, edged up from 50.4 in August to 50.8 in September, signalling a marginal increase in private sector output for the second successive month. The return to growth has followed a 14- month period of declining output, during which the rate of deterioration peaked in February. In September, the output rise spread to services.

At 49.4, the average Output Index reading for Q3 was up sharply from 43.2 in Q2 and the highest since Q2 of last year.

A second consecutive monthly rise in manufacturing output was accompanied by the first improvement in service sector business activity for 16 months. However, rates of increase were only modest in both sectors and even slowed slightly in manufacturing.

New orders rose for the first time since last April, driven up by a second successive monthly increase in manufacturing new orders, which rose at the fastest pace for 22 months, and the first increase in incoming new business in the service sector for 16 months. Manufacturers’ new export orders* fell marginally, however, after recording no change in August, though the decline was far smaller than the severe drops seen earlier in the year.

Manufacturers’ stocks of finished goods again fell at a historically steep rate, causing the ratio of new orders to inventories to fall only fractionally from Augusts 32-month high. Increases in this ratio tend to be followed by upturns in production.

The near-term outlook for services also remained positive, with confidence about business activity levels rising to the highest for over three-and-a-half years.

Having slowed in the previous four months to a ten-month low in August, the rate of job losses picked up again in September. Employment has now fallen for 15 straight months. Manufacturing headcounts fell at the weakest pace for 11 months, but continued to drop at a far steeper rate than services, despite the latter seeing the pace of job losses accelerate during the month.

Prices continued to fall, although the rates of decline of both input costs and selling prices eased to the slowest for ten- and nine-months respectively. The rate at which manufacturers’ input prices are falling has eased particularly sharply in recent months, hitting an 11-month low in September, driven in part by higher oil prices and improved pricing power among suppliers (delivery times showed the greatest lengthening for 16 months)
Prices charged fell at the slowest pace for nine months in manufacturing, but the rate gathered pace again slightly in services, highlighting the ongoing need for firms to offer discounts to stimulate demand.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said: “The flash PMIs for September round off the strongest quarter since Q2 of last year, suggesting that the Eurozone economy stabilised in Q3. Robust manufacturing inventory ratios and service sector confidence suggest we could see an even better performance in Q4. However, the momentum of the rebound is showing some signs of waning, with an increase in the rate of job losses in September particularly disappointing, and suggesting only modest growth lies ahead.”

The Eurozone PMI (Purchasing Managers' Index) is produced by Markit Economics and is based on original survey data collected from a representative panel of around 4500 companies based in the euro 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.