The final Markit Eurozone Manufacturing PMI (Purchasing Managers' Index) posted 51.6 in December 2009, up from 51.2 in November. The latest reading was in line with the earlier flash estimate and confirmed that the index had reached its highest level since March 2008. The PMI  -- a composite index based on measures of production, orders, employment, inventories and supplier performance- - has signalled an improvement in manufacturing operating conditions in each of the past three months. Output rose for the fifth month in a row and at the fastest pace since September 2007 - - closing the year at a 21-month high.

However, the final index reading was slightly below the earlier flash estimate. Germany and France continued to lead the upturn. The rate of growth in Germany held broadly steady at November’s 26-month high, whereas in France the pace of expansion accelerated after slowing slightly in the previous month.

Italy was notable in seeing the sharpest increase in production for 27 months, and the Netherlands and Austria also reported higher output. The downturns in Spain and Greece continued, while in Ireland output fell marginally after rising in the previous month.

Output rose fastest in the investment goods sector, where growth was the strongest for nearly two years, followed by the consumer goods sector which saw the rate of increase in output accelerate sharply to hit a 28-month peak. In contrast, growth slowed in the intermediate goods sector.

December data pointed to a fifth consecutive month-on-month increase in new orders. However, the final index reading came in below the earlier flash estimate. This suggested that the rate of growth had actually eased instead of accelerating as previously reported. The strongest gains in new orders were reported in France, Germany and the Netherlands. New orders continued to decline in Spain and Greece, with by far the sharpest rate of contraction recorded in Spain.

Levels of new export orders improved to the greatest extent since September 2007, led by the Netherlands, Germany and France. However, the rate of increase was below the flash estimate that was issued before Christmas.

Employment declined for the nineteenth successive month in December, with job losses reported in all of the countries covered by the survey. However, the rate of decrease was slower than the earlier flash estimate and the weakest since September 2008. The sharpest pace of job cutting was in the investment goods sector.

In a further sign that active capacity is coming more in line with current demand requirements, backlogs of work increased for the second month running and at the fastest pace since August 2007.

December data pointed to price pressures building in the Eurozone manufacturing sector. Inflation of average input prices accelerated sharply to a 15-month high and was above the flash figure. Rates of increase were most rapid in France, Italy, Spain and Greece. Sector data indicated that intermediate goods producers were hit hardest by raw material prices increases. Part of the increase in costs was the result of supply-side pressures resulting from low stocks at vendors, which in turn caused a marked deterioration in supplier performance. Although average selling prices continued to drop – highlighting ongoing price competition amongst manufacturers – the rate of decline was the slowest since November 2008.

Stocks of both purchases and finished goods fell at similar rapid rates in December, though the falls were the smallest for 14 and nine months respectively and were slower than flash estimates. Purchasing activity rose for the third month running and to the greatest extent in almost two years.

Commenting on the PMI data, Markit Senior Economist, Rob Dobson said: “The final December readings confirm that Eurozone manufacturing ended the year on a positive note, with the headline PMI at a 21-month high. Although this was tempered by the lower-than-flash outcomes for the output and new orders indexes, the rates of increase signalled for both these variables still represent a marked turnaround from the unprecedented downturn at the start of the year. Job losses are still mounting, but the rate of decline is easing and the reduction in December was the weakest for 15 months. ”

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