The Eurozone manufacturing sector grew in October for first time since May 2008. At 50.7, up from 49.3 in September, the final Markit Eurozone Manufacturing PMI (Purchasing Managers' Index) for October was unchanged from a flash estimate last month, confirm the first improvement in business conditions since May 2008.

The PMI is a composite index based on measures of output, orders, employment, inventories and supplier performance, and the improvement in the indicator, albeit marginal, marked an end to what has been by far the longest and deepest downturn since PMI data were first collected in 1997.

Output increased for the third month running in October, rising by slightly less than the flash estimate but nevertheless signalling the strongest monthly expansion since January of last year. However, output disparities widened within the euro area.

French manufacturers reported a further marked acceleration in output growth to outperform all other euro nations by a wide margin, recording the fourth consecutive monthly rise in production and the fastest rate of increase for just over nine years. Germany saw the second strongest growth, as output rose at the fastest pace since June of last year, closely followed by Austria and the Netherlands, which both likewise saw growth accelerate during the month. In contrast, output fell in Spain, Ireland and Greece.

Producers of investment goods (plant and machinery etc.) and intermediate goods (products supplied as inputs to other manufacturers) saw the strongest growth of production, recording the largest monthly gains for 19 and 23 months respectively. Output of consumer goods rose only modestly by comparison, though nonetheless registered a third successive monthly increase.

Eurozone manufacturing new orders rose by marginally more than estimated by the earlier flash reading, showing the largest monthly rise since August 2007. France and Germany reported considerably stronger increases in new orders than other countries, with growth hitting 35- and 26-month highs respectively. Only Spain, Greece and Ireland saw lower levels of new orders.

New export orders rose at a slower pace than total new orders, hampered by the strong euro, but nonetheless recording the largest increase since January of last year as manufacturers benefited from resurgent demand in many markets. The Netherlands, Germany, France and Austria all saw robust export order growth, but marked declines were seen in Spain, Italy and Greece.

Stocks of finished goods continued to fall at a steep pace, driving the new orders: inventory ratio up to a nine-year high and suggesting that output will need to rise further in coming months to make up for a shortfall of warehouse stock relative to sales. Inventories fell in all countries, led by Germany.

Employment fell slightly less sharply than indicated by the flash, falling for the seventeenth month running. However, the rate of job losses has eased sharply in recent months to the weakest for a year. Staffing levels fell in all countries covered by the survey, but rates of decline eased in Germany, France, Spain and Austria.

Outstanding work fell only fractionally, registering the smallest drop since backlogs began falling in April of last year, suggesting that operating capacity has been largely brought back into line with workloads. Robust increases in backlogs were even noted in France, Germany and Austria.

Manufacturers bought more inputs for the first time since May of last year, causing suppliers’ delivery times to lengthen to the greatest extent since March of last year.

Input prices rose for the first time for a year, driven up by rising commodity prices and higher rates from suppliers as pricing power was regained for some products. The increase in prices was greater than the flash estimate as costs rose in Italy, France, Spain, the Netherlands, Austria and Greece. Input prices meanwhile continued to fall in Germany and Ireland, though at reduced rates.

Prices charged fell for the twelfth month in a row, though the decline was less than indicated by the flash estimate and the weakest since last November. Manufacturers in all countries reported lower selling prices, though rates of decline slowed in Germany, Spain, Ireland and Austria. Stronger rates of decline in the other countries largely reflected the need to offer discounts to stimulate sales.

Commenting on the PMI data, Markit Chief Economist, Chris Williamson said: “Business conditions in the Eurozone manufacturing sector improved for the first time since May of last year, driven by accelerating growth of output and new orders and moderating job losses. With capacity now coming into line relative to order books, and further growth of production looking likely in coming moths as factories restock, conditions are set to improve further. National disparities are a concern, however. In particular, surging nine-year high growth in France sits uncomfortably with ongoing weakness in Italy and Spain.”

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.