The eurozone economy is showing signs of picking up momentum in the fourth quarter, with multi-year highs seen for all main indicators of output, demand, employment and inflation in November, according to IHS Markit’s Purchasing Managers’ Index.
Business activity and prices rose at the steepest rates for over six years, while the largest accumulation of uncompleted work for over a decade encouraged firms to take on staff at a rate not seen for 17 years.
The headline IHS Markit Eurozone PMI rose to 57.5 in November, according to the “flash” estimate (based on approximately 85 per cent of final replies), up from 56.0 in October and its highest since April 2011. The latest reading puts the economy on course for its best quarter since the start of 2011. The upturn was again led by manufacturing, where the headline PMI rose to a level beaten only once – April 2000 – since the survey began in June 1997.
Faster manufacturing output growth was accompanied by improved services growth, which rose to the highest since May, registering one of the largest expansions seen over the past six-and-a-half years. Inflows of new orders showed the largest gain since February 2011. The biggest increase in factory new orders since April 2000 helped offset a slight moderation in the service sector. Goods exports increased at a survey record pace.
Despite the slowing in growth of service sector new work, both sectors saw backlogs of work accumulate at higher rates, with a record increase in manufacturing joined by the largest rise in the service sector since May 2011. The resultant overall build-up in backlogs of work was the largest since July 2006.
The shortfall of capacity relative to order book inflows signalled by the increase in outstanding work prompted growing numbers of firms to take on more staff. Employment showed the strongest rise since October 2000, with a record gain in factory jobs accompanied by the steepest rise in service sector payrolls for a decade.
Further signs of capacity being stretched were seen in a lengthening of manufacturing suppliers’ delivery times, which signalled the highest incidence of delays for over 17 years. Longer deliveries reflected higher demand for inputs from manufacturers, where inventories over the past two months have risen to a degree rarely seen in the survey’s history.
The faster pace of growth signalled by the surveys was accompanied by price pressures hitting the highest since mid-2011. Average input costs were pushed higher by the combination of rising global prices for key commodities, such as oil, as well as greater pricing power amid improved demand conditions.
Input prices showed the largest monthly jump since May 2011 while average selling prices for goods and services rose to the greatest extent since June 2011. Expectations about the next 12 months cooled slightly in both sectors in November, indicating one of the lowest degrees of optimism seen over the past year, but nonetheless remained elevated by historical standards.
Looking at the data by country, growth surged in France to the highest since May 2011, outpacing Germany for only the fourth time in over five years, despite the latter seeing growth also accelerate to a rate just shy of a six-and-a-half year high. While Germany’s expansion was again led by manufacturing, where the headline PMI rose to the second-highest on record, France’s upturn was led by services, albeit with manufacturing also gaining momentum.
Elsewhere, growth of business activity perked up from October’s nine-month low but is on course for the weakest quarter so far this year. More detailed releases for France and Germany are available on the PMI release webpage.