After contracting for 23 straight months, manufacturing activity in the Eurozone grew (barely) in July, according to preliminary data from Markit. The Markit Flash Eurozone Manufacturing PMI rose from 48.8 in June to 50.1 in July, just above the all-important threshold of 50 which signifies expansion in the sector on net. The last time that the manufacturing PMI figure was over 50 was June 2011. While Europe continues to have political and economic issues, we have seen the pace of the decline slow in recent months. July’s increase is the culmination of gains made since March’s 46.7 reading and the 44.0 value observed in June 2012.
Increased output was the main driver of this month’s higher figure, with the index for production up from 49.5 to 52.3. Demand rose both in the Eurozone and for exports, with the new orders index up from 49.1 to 50.4 and exports rising from 49.0 to 50.9. This should bode well for manufacturing activity moving forward, but it is also clear that weaknesses persist. While there are small gains in output and sales, employment remains negative, albeit less so, up from 47.5 to 49.0. Similarly, sellers continue to have to lower their prices to sell their goods, even some easing in the decline in output prices (up from 47.9 to 48.5). Nonetheless, the general consensus about these data have been overwhelming positive, with many perceiving the shift from contraction to growth as a sign that Europe might be starting to turn a corner.
In contrast to Europe’s gains, China’s manufacturing activity appears to be slipping. The HSBC Flash China Manufacturing PMI declined from 48.2 in June to 47.7 in July. Growth in China has been decelerating for much of this year, spilling over into data on production and demand. This was the third straight month of sub-50 PMI readings for the manufacturing sector. Index values were lower for output (down from 48.8 to 48.2), new orders (down from 47.1 to 46.6), and employment (down from 47.9 to 47.3). On a somewhat positive note, while they were still contracting, new export sales were decreasing at a slower rate (up from 44.0 to 47.7). Moreover, output price declines also eased for the month (up from 42.9 to 47.2), even as sellers continue to have to reduce their prices to sell goods.
Meanwhile, manufacturing activity in the U.S. appears to be picking up, a conclusion that we have seen in other economic indicators, as well. The Markit Flash U.S. Manufacturing PMI increased from 52.2 in June to 53.2 in July. This was the fastest pace since February’s 54.9 reading, perhaps a sign that the sector has returned to modest growth after pervasive softness in the market in the spring months. The improvements in July’s data stem largely from a faster pace of growth for new orders (up from 53.7 to 55.1), with gains in export orders, as well (up from 47.5 to 52.3). The international piece is key, particularly given the weakness that we have seen in manufacturing goods exports so far in 2013.
In addition, employment, which has been relatively flat in June, edged slightly higher in July (up from 50.4 to 52.6). Despite the uptick in new orders, the index for output was virtually unchanged for the month (up from 53.9 to 54.0), but still reflects modest gains. The news about higher sales, though, should push production higher in coming months, particularly as stockpiles of finished goods remain low. The inventory index contracted in July (down from 51.0 to 47.0) and has had sub-50 readings in 9 of the past 12 months.
Flash data utilize most, but not all, of the survey responses. Markit says that it usually includes 85 percent of the incoming data for its Flash releases. The final data will include all information, with the final PMI releases for each of these data points scheduled for August 1.
Chad Moutray is the chief economist, National Association of Manufacturers.
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