Euro-area manufacturing accelerates as orders fuel optimism

Bloomberg

Euro-area manufacturing expanded at the strongest pace in over six years as factories across the region took on more workers to deal with surging orders.
A Purchasing Managers’ Index climbed to 57.4 in June, up from 57.0 in May and above a June 23 flash estimate, IHS Markit said on Monday. Growth rates improved in most of the surveyed countries, including France and Italy,
while a gauge for Greece signaled expansion for the first time since last August.
“There’s no sign of the impressive performance ending any time soon,” said Chris Williamson, chief business economist at IHS Markit. “Optimism about the year ahead has risen to the highest for at least five years, backlogs of orders are building up at the fastest rate for over seven years and factories are reporting near-record hiring as they struggle to deal with the upturn in demand.”
The figures underline rising confidence among policy makers that the recovery in the 19-nation economy is strengthening after years of subdued activity and muted inflation. Unemployment data on Monday showed joblessness held at 9.3 percent in May, the lowest level since March 2009. With factory output rounding
off the best quarter since 2011, overall economic growth in the three months through June is likely to have received a strong boost from goods production, IHS Markit said.
Improvements can also be seen on the inflation front. While input costs have fallen since the start of the year, manufacturers increased selling prices sharply, Williamson said. “Increasingly widespread supply-chain shortages mean pricing power is being regained, hinting at some upward pressures to core inflation.”
Data on Friday showed euro-area price growth slowed less than economists predicted in June as a measure of underlying pressures that strips out volatile components such as energy and food exceeded estimates. European Central Bank President Mario Draghi has insisted that he wants to see proof that inflation momentum is sustainable before withdrawing monetary support.

UK MANUFACTURING
SLOWS DOWN
UK manufacturing slowed more than forecast in June as uncertainty hit demand, raising doubts about the outlook for the economy in the second half, according to IHS Markit.
Its Purchasing Managers Index fell to a three-month low of 54.3 from a downwardly revised 56.3 in May, the company said on Monday in London. While that’s below what economists had forecast, it’s still above the 50 level that divides expansion from contraction.
The survey adds to evidence that the inconclusive general election and the start of Brexit talks last month are weighing on companies and households. That may strengthen the case for keeping interest rates at a record low after Bank of England officials split in recent weeks over whether to tighten policy in response to rising inflation.
“Increased business uncertainty appears to have led to some delays in placing new contracts,” said Rob Dobson, an economist at IHS Markit. “While the survey data add to signs that the economy is likely to have shown stronger growth in the second quarter, further doubts are raised as to whether this performance can be sustained into the second half of the year.”
The rise in factory orders was the weakest in 11 months as growth of new business slowed in both the domestic and export markets, IHS Markit said. The slowdown was broad-based, with weakness across the consumer, intermediate and investment goods industries.

POUND FALLS
Economists in a Bloomberg News survey had predicted the overall manufacturing index would drop to 56.3 in June from a previously reported 56.7 in May. The pound weakened 0.4 percent to $1.2974 after the data was published.
Factory-price pressures continued to ease from their highs earlier this year, with input-cost inflation at its lowest in 12 months and output prices charged increasing at their slowest pace since September. While the pound’s drop since the European Union referendum helped to support overseas demand, export orders “remained disappointingly lackluster,” Dobson said.
Manufacturing accounts for about a tenth of the British economy. PMI data on services, which make up almost 80 percent, will be published on Wednesday.