Source: Markit

The Markit Flash Eurozone Composite Output Index, based on around 85% of usual monthly PMI (Purchasing Managers' Index) survey replies, rose for the first time in three months in July, up from 56.0 in June to a three-month high of 56.7. The reading signalled the second-strongest monthly increase in output for three years and the twelfth successive monthly rise. Output growth picked up in both manufacturing and services. Manufacturing continued to lead the upturn, with output showing the third-strongest rise since October 2006. Services activity meanwhile posted the second-strongest expansion since August 2007. Employment rose at fastest pace for over two years.

The faster growth of output matched a similar upturn in new orders, growth of which picked up slightly from June’s four-month low (but remained below the peak seen in April). New orders growth accelerated in both manufacturing and services, although manufacturers reported that the rate of increase of new export orders slowed further from March’s 10-year high to register the weakest rise since January.

The upturn in output and orders growth therefore appears to have reflected better conditions in domestic markets. However, any further improvement is not expected, at least among service providers. Confidence in the service sector about the year ahead dropped further from April’s peak to the lowest since last November.

Employment rose for the third consecutive month with jobs being added at the fastest pace since April 2008. However, the rate of job creation remained well below the peaks seen prior to the recession. Employment rose at the fastest rate since May 2008 in manufacturing and since April 2008 in services.

Manufacturers’ stocks of finished goods showed the second-smallest decline since inventories began falling in January of last year, while stocks of inputs increased for the second time in the past three months, indicating the first period of stock-building for over three years. With purchases of inputs rising for the tenth successive month (albeit growing at the slowest pace for five months), suppliers’ delivery times continued to lengthen at a rate largely unchanged from April’s ten-year peak.

Source: Markit

Markit said that despite the continued pressure on supply chains, manufacturers’ input price inflation slowed for the second month running to the weakest since February, as many commodity prices fell,. Service sector input cost inflation likewise slowed, easing for the third month, causing average input cost inflation measured across both sectors to show the weakest rise since February.

Prices charged were largely unchanged for the fourth month. Higher prices for goods were offset by lower service sector charges. However, while prices charged for goods showed the smallest rise in the past four months, charges for services registered the smallest fall in twenty-one months.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said: "The flash PMIs for July show surprising improvements in rates of increase of both output and new orders following two months of slower growth. The survey therefore shows a better-than-expected start to the second half of the year, with output growing in July at a rate similar to the average seen in the second quarter (and consistent with 0.6%–0.7% GDP growth). However, despite the upturn, inflows of new orders are growing at a pace well below April’s peak, in part due to further signs that export growth is slowing as global trade flows cool. Service providers also provided the most downbeat assessment of future activity for eight months."