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Report on the October 2012 Purchasing Managers’ Index

For 14 consecutive months, manufacturing throughout the Eurozone has contracted, contributing to the economic downturn. Initially, there were no signs that the trend would slow, but recent figures for September appear to show a slight easing of the rapid decline. It’s not a significant enough development to start thinking about a manufacturing increase however, and there are still broad financial concerns.

The Markit Purchasing Manager’s Index was 46.1, which is an improvement compared to the previous month’s 45.1, though only a slowing of a downward trend. Any figure below 50 indicates contraction, so while things are not good, there is some progress towards stability being made.

Despite the overall downward trend, there were two countries that actually increased their manufacturing output; Ireland and the Netherlands. They contributed to the slowing of the Eurozone contraction, but other countries’ marginally improving fortunes also pushed up the average.

Germany and Italy in particular managed to increase manufacturing to a certain extent, though only by small amounts. They recorded 4 and 6 month highs respectively. In other areas, figures continue to disappoint.

One of the main reasons for the continued contraction is the lack of business confidence, which is particularly low in the Eurozone. Data suggests that confidence hasn’t been as weak for three years, and the finger is being pointed at Spain’s vulnerable position. Of course, the continual downward trend does nothing to convince businesses otherwise, and it is unlikely that October will show any increase in confidence. It could be months before this improves.

As a result of the lack of confidence, not only are existing businesses scaling back their operations due to higher overheads, but new business is not being established either. This is to say that fewer orders are being put through, which is of course discouraging extra production. New orders haven’t fallen as dramatically as they did in September since June of 2009. Until new business begins to expand, it is unlikely that major manufacturers will increase operations.

If a lack of supply and demand wasn’t enough, employment rates have also fallen; for the ninth month in a row. This has been seen across most Eurozone countries, even ones that have improved in other areas, such as Germany.

This negative impression means that most businesses in the service sector are predicting that the situation may actually be worse in a year’s time. They cited weak demand as the main reason for a continual slump. Experts suggest that increased demand is likely to be one of the few things that would significantly kick-start manufacturing again, but it looks unlikely in the near future.

One of the main aims of Eurozone countries is to encourage the formation of new businesses. It is proving difficult, but incentives are being offered. One of the main hurdles for new manufacturing companies is the initial outlay for machinery. In response to this, suppliers such as Clarence Jones Machinery Company Ltd are offering special deals and are working with start-ups that are on a budget.

This was posted in Bdaily's Members' News section by Vickie Harrison .