Euro area manufacturing growth continues to ease, manufacturing PMI index falls in November

The IHS Markit Eurozone Manufacturing PMI for the month of November hinted at the continued deceleration in euro area’s manufacturing growth. The final PMI dropped to 51.8 in November from October’s 52. The November’s reading is the softest since August 2016.

Softness was concentrated on the investment goods sector. Capital goods producers recorded net declines in both production and new work. Export trade was also down for the third straight month, whilst cost pressures continued to be elevated. On the contrary, strong growth continued to be seen amongst consumer goods producers. The euro area’s ‘big-four’ economies recorded the lowest manufacturing PMI readings of all nations covered by the survey in November.

Most markedly, Italy saw a second successive monthly fall in manufacturing operating conditions, recording its lowest PMI reading in almost four years. France recorded growth ease towards stagnation, whilst Germany saw its softest growth in more than two-and-a-half years. On the contrary, Spain saw a slight rebound in growth, whilst there were also stronger gains witnessed in Austria, Greece and Ireland. The Netherlands continued to record the highest growth, in spite of the pace of growth dropping to its lowest in more than two years.

Underlying the softer overall growth of the manufacturing economy was a second straight monthly fall in new orders. Consistent with the recent trend, export trade was seen to have dropped for the second straight month. Net falls in new work were recorded in Germany, France and Italy. Declining demand was partially attributed to challenging conditions in the autos industry which also impacted output. In all, production of manufactured goods continued to rise in November, but only slightly and at the softest rate in almost five-and-a-half years of continuous growth.

With output rising at a time of falling new work, manufacturers were able to clear backlogs of work and build inventories of finished goods for a second month in succession. In the meantime, on the jobs front, employment growth was sustained in the month. Nevertheless, the softer underlying trends in output and new orders spilled over into the labor market, with the net gain in payroll numbers the softest since September 2016. Higher employment was seen throughout all countries except France, where a slight fall was seen for the first time in more than two years.

Input prices continued to rise at an elevated rate, in spite of inflation easing a bit since October. Price pressures continued to be acute in Germany and Austria, compared to the relatively softer rises seen in Italy, Spain and Greece. Output charge inflation for the region as a whole continued to be at an above average rate, in spite of being the slowest seen in 15 months.

The latest data indicated that confidence about future output was slightly changed on October’s near six-year low Worries about trade and the future performance of the autos industry and political worries all served to depress sentiment in November. German manufacturers continued to be downbeat, with outright pessimism again recorded.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish at -109.39, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 0.990325. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex