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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Eurozone factory growth hits six-year high but UK and America slow – as it happened

A worker inspecting rolls of steel.
A worker inspecting rolls of steel. Photograph: Ben Birchall/PA

It’s official, America’s manufacturing sector slowed last month.

The Institute of Supply Management (ISM) just released its own report, and like Markit’s rival data it shows that the growth rate dipped.

The ISM’s manufacturing PMI fell to 57.2 in March, down from 57.7 in February.

That’s still a decent-enough result, comfortably over the 50-point mark that divides rising and falling activity level, and a little higher than expected.

Here are the key points, via Bloomberg:

  • ISM’s production gauge cooled to a four-month low of 57.6 from 62.9, which was the best reading since March 2011
  • Gauge of supplier deliveries rose to 55.9 in March, the highest since December 2014, from 54.8
  • Measure of order backlogs climbed to 57.5, the best reading in three years, from 57
  • Customer inventories gauge fell to 47, matching the second-lowest since July 2015, from 47.5

That’s probably all for today. Thanks for reading and commenting. GW

Markit: US factory growth hits six-month low

The first of two healthchecks on America’s factory sector just arrived, and it’s a little disappointing.

Markit’s monthly US manufacturing PMI has fallen by nearly one whole point, from 54.2 to 53.3. That’s the lowest reading since September 2016, signalling that growth has hit a six-month low.

US manufacturers reported that new orders and output growth had slowed, meaning they also hired fewer new staff than earlier this year.

And again, there are signs that raw materials are getting more expensive...

US manufacturing PMI

Chris Williamson, Markit’s chief business economist, is warning that the US economy may be weakening:

“The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam. Output growth slowed to a six-month low in March, optimism about the outlook has waned and hiring has slowed accordingly.

“While the survey data suggest that the goods producing sector enjoyed a relatively good first quarter on the whole, the loss of momentum seen in February and March bodes ill for the second quarter.

Newsflash: Another UK company is facing a takeover offer from an overseas rival.

This time it’s WS Atkins, the engineering, design, planning, and architectural design firm based in Epsom, Surrey. It has received a takeover offer from SNC-Lavalin Group Inc., a Montreal-based engineering services company.

The approach values Atkins at £20.80 per share, a 35% premium to Friday night’s close.

Atkins told the City that:

The Board of Atkins has indicated to SNC-Lavalin that the Possible Offer would deliver value to Atkins shareholders at a level that the Board would be prepared to recommend, subject to reaching agreement on the other terms and conditions of the offer.

Atkins and SNC-Lavalin are in discussions about the other terms and conditions of the Possible Offer which is conditional on, amongst other things, diligence and financing.

Shares in Atkins have soared by almost 30% to £19.95, suggesting that City expects the deal to sail through.

Skyscrapers in the City of London.

It’s been a rather subdued morning in the City, with sentiment dampened by the slowdown in UK factory output growth.

The FTSE 100 never really got moving, and is currently up just 1 points (0.02%).

Joshua Mahony, market analyst at online trading firm IG, says investors are edgy as they wait for the leaders of America and China to meet later this week.

Market direction remains indecisive, given the huge number of economic and political issues at hand....

The FTSE has started the week in somewhat indecisive fashion, with initial gains promptly erased ahead of a big week for the markets.

Fashion firm Burberry is outperforming the market, up 1% after signing a deal to license its fragrances and cosmetics brands to US beauty firm Coty.

The pound has lost half a eurocent against the euro today to €1.173, as well as half a cent against the US dollar.

Paresh Davdra, CEO of RationalFX, explains why:

“After sustaining an upward trend last week, the pound has fallen as the release of UK manufacturing figures showed signs of a slowdown. For the first time in several days, the pound showed signs of weakness against the euro and the dollar on the back of disappointing manufacturing figures for March – in marked contrast to the robust figures seen in Eurozone.

These weaker figures suggest that after months of good export levels, the inflationary effects of Brexit and the falling demand for consumer goods could be making it difficult to sustain the same levels of growth.

Today’s PMI report also shows that UK firms are having to cope with sharply rising input costs - as raw materials become steadily pricier.

That’s partly due to the depreciation in the value of the pound since the Brexit vote.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, explains that firms are now passing those costs on.

The reduced buying power of the Pound has led to the 11th consecutive rise in input costs with consumers feeling the effects in the form of higher prices on the high street.

There are also signs that supply chains are struggling, with companies reporting longer waits for their own orders to be delivered.

Brocks comments:

Supplier delivery times have also begun to lag, clogging up the supply chains of British manufacturing. With the rate of new order growth showing early signs of easing in March, manufacturers must act to ensure they are not locked into costly contracts. Now is not the time for manufacturers to rest on their laurels.

Eurozone recovery: What the experts say

Mihir Kapadia, CEO of Sun Global Investments, says the French presidential elections will determine whether Europe’s recent recovery continues:

“Europe’s economic growth looks to be robust with factory output growth hitting the fastest rate since April 2011. Germany and Netherlands within the euro-core continued to show strong growth but Greece deteriorated further during March. The surprising element has been UK’s manufacturing, which has indicated a slowdown despite boost of the weaker pound after Brexit.

As we now enter the second quarter of the year, the key event in Europe will be the French presidential election. While Eurosceptic Marine le Pen is expected to win in the first round and lose in the second round run-off , it is worth remembering opinion polls have proved fallible in predicting the strength of populist sentiment in the case of Brexit and the Trump victory. A Le Pen victory would be huge challenge for the ECB as it would be required to give massive support to the Euro and to French bonds and banks as they would come under severe market pressure.”

Mike Bird of the Wall Street Journal points out that the eurozone jobless rate is now below its average level, thanks to today’s fall:

Howard Archer of IHS Global Insight reckons Europe’s labour market is benefiting from “recent solid Eurozone growth and healthy business confidence”.

However....

With still appreciable slack in labour markets in most Eurozone countries, wage growth looks most likely to pick up only gradually.

It’s a record-breaking day in India, where the stock market has closed at its highest ever level.

Traders were encouraged by today’s manufacturing data, which showing growth picking up.

Marianne Thyssen, the European Commissioner for Employment, tweets that European leaders need to keep pushing to bring unemployment down:

Updated

Eurozone unemployment falls to near-eight year low.

We have further good news for the Eurozone this morning, on top of the strong factory data.

Unemployment across the region has fallen to its lowest level in almost eight years, in another sign that its economic recovery continues.

The eurozone jobless rate fell to 9.5% in February, statistics body Eurostat reports, down from 9.6% in January. That’s the lowest rate recorded in the euro area since May 2009.

Unemployment in the wider European Union also fell in February, to 8.0% from 8.1%. Twenty six EU members reported lower unemployment than a year ago, but the jobless rate did rise in Denmark and Lithuania.

However, the figures also highlights the sharp differences across Europe.

The lowest jobless rates were recorded in the Czech Republic (3.4%), Germany (3.9%) and Malta (4.1%).

But in Greece, the jobless rate remains over 23%, and in Spain it is 18.0%

(They mean February 2017, of course)

Mike Rigby, head of manufacturing at Barclays, isn’t too concerned by the slowdown in UK factory growth last month.

“Although March saw an easing in output, manufacturing’s solid start to the year continues with healthy order books and exporters continuing to capitalise on sterling’s weakness. However, with inflation looming large, manufacturers should be increasingly conscious of the potential softening of UK domestic demand, which has been fuelling growth for some time.”

Apologies, we’re having some technical problems with images this morning.

It’s being looked into; in the meantime, here’s the UK manufacturing PMI (in case you can’t see it in the 9.42pm post)

Sterling rattled by UK factory slowdown

The pound has been hit by the news that UK factory growth slowed last month.

Sterling is down almost half a cent against the US dollar this morning, at $1.2498.

Ms Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, suspects that UK factories will suffer from slowing consumer demand this year:

“Today’s data certainly doesn’t set off any alarm bells but it does signal that the consumer, one of the big props of UK growth in recent years, is already under the cosh and if there is any loss of momentum in the global economy, these strong manufacturing indicators could falter.”

UK factory growth slows

Newsflash! Britain’s manufacturing sector slowed in March, dashing hopes that growth would pick up.

The UK manufacturing PMI has fallen to 54.2, the lowest reading in four months, according to data firm Markit. That’s down from 54.5 in February, and rather weaker than the 55.0 which some City forecasters had expected.

[reminder: Any reading over 50 shows growth]

UK PMI

Markit reports that output and new order growth both slowed last month, suggesting that the British economy may be cooling. Consumer goods producers suffered the sharpest slowdown, with growth little higher than in February.

Firms also reported another rise in input costs, as inflationary pressures hit the sector again. More encouragingly, they did also keep hiring staff.

Rob Dobson, Senior Economist at IHS Markit, says Britain’s manufacturing sector seems to be slowing down:

“The survey data suggest that the goods-producing sector made a solid contribution to GDP during the opening quarter of 2017. However, it’s clear that the expansion will be less than the buoyant 1.3% rise seen in the fourth quarter of last year.

“With growth losing further momentum in March, that weaker trend is likely to continue into the second quarter. The latest survey also clearly shows that high costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these products slowing further.

Updated

Markit has also warned that Greece’s manufacturing downturn continued last month:

Operating conditions in the Greek manufacturing sector deteriorated further during March. The downturn was driven by another sharp decrease in new orders, which in turn contributed to a further drop in output. As a result of lower production requirements, firms reduced their staffing numbers and input buying.

Greek PMI

Updated

Eurozone factory growth hits six-year high

Boom! Europe’s economic recovery continued last month, with factory growth hitting its fastest rate since April 2011.

Data firm Markit reports that growth rates for production and new orders accelerated to near six-year highs in March.

Companies reported a surge of orders from domestic and export clients, leading to faster job creation.

This drove the overall eurozone manufacturing PMI up to 56.2 in March, up from 55.4 in February, showing the fastest growth in 71 months.

The pace of the recovery is now causing new problems, with some firms reporting that their suppliers are struggling to meet demand.

Germany and the Netherlands led the way with particularly robust growth. But Greece missed out again, suffering another contraction.

Eurozone factory growth in March

Chris Williamson, chief business economist at IHS Markit said:

“Eurozone manufacturing is clearly enjoying a sweet spell as we move into spring, but it is also suffering growing pains in the form of supply delays and rising costs.

“All key business activity gauges – output, new order inflows, exports, backlogs of work and employment – are close to six-year highs.

“However, the survey is also signalling the highest incidence of supplier delivery delays for nearly six years, underscoring how suppliers are struggling to meet surging demand.

“These delays send a warning signal about rising inflationary pressures, as busy suppliers are often able to hike prices. Prices charged for goods leaving the factory gate are consequently rising at the fastest rate since mid-2011, despite March seeing a drop in the price of oil and a stronger euro against the US dollar, as supplier price hikes are passed on to customers.

“The upturn is broad-based with one exception. Greece is suffering an increased rate of contraction of its manufacturing economy, with exports dropping sharply again in March.”

Updated

German manufacturing PMI hits 71-month high

German factory growth has hit its highest level in almost six years, thanks to a rise in exports.

Markit says:

Output increased at the fastest rate in over three years, driven by the strongest gain in new orders in nearly six years. Moreover, new export orders grew at the strongest pace since May 2010. This led to the sharpest rise in employment in over five-and-a-half years.

France’s manufacturing sector also had a good March, today’s data shows.

New orders surged, sending the French factory PMI up to 53.3 from 52.3 in February.

Italian factory growth hits six-year high

Good news from Italy! The country’s manufacturing sector has posted its fastest jump in activity since March 2011.

Italian factory bosses reported a “sharp and accelerated growth” last month, with production rates picking up, new orders rising, and higher exports too.

Data firm Markit also found that job creation accelerated, saying

A record rise in backlogs of work meanwhile contributed to a further pick-up in factory job creation, while goods producers also raised their input buying levels.

Encouragingly, manufacturers also showed plenty of optimism towards growth prospects in the coming year too.

The first eurozone manufacturing data has arrived..... and it shows that Spain’s factory sector slowed last month.

The Spanish manufacturing PMI fell to 53.9 in March, the lowest reading since October, down from 54.8 in February.

That’s still comfortably over the 50-point that separates expansion from contraction, though, and firms said they were still optimistic about future prospects.

Sanish firms also reported that the cost of raw materials continued to climb.

Markit, which compiles the report, says:

The rate of input cost inflation quickened to the fastest in nearly six years during March, having accelerated for the seventh month running. Among the items reported as being up in price were cotton, paper, plastics, steel, fuel and other oil-related products.

Wowzers. Shares in UK chip designer Imagination Technologies have plunged by over 60% this morning, after it shocked the City by revealing that Apple will no longer use its intellectual property in its new products.

Apple are Imagination’s largest customer, and provide around half its revenue by using its intellectual property in iPhones, iPads, and iPods under a licensing agreement.

All that will change in two years, though, Imagination revealed this morning in a rather terse announcement.

Imagination also hinted at legal battles ahead, claiming it will be “extremely challenging” for Apple to design new chip architecture without infringing its intellectual property rights.....

German stock market on track for record close

Germany’s stock market is heading to a fresh record high in early trading, as Frankfurt traders start the week in good form.

The DAX is leading Europe’s stock markets higher in early trading, and has jumped over its previous record close in 2015.

There’s a more muted feeling in London where the FTSE 100 is pretty flat.

European stock markets in early trading
European stock markets in early trading Photograph: Thomson Reuters

Connor Campbell of SpreadEx says:

April hits the ground running this Monday, with the markets kicking off the second quarter with a glimpse at Q1’s final manufacturing PMIs.

Turkey’s manufacturing sector has posted its fastest growth in three years.

Today’s Purchasing Managers Index report shows that firms took on more staff last month, to handle a pick-up in new orders.

Asian manufacturers have a decent March

We’ve already seen some encouraging manufacturing reports from Asia today, including a strong pick-up in India and steady growth in Japan.

Reuters has the details:

Factories across much of Asia posted another month of solid growth in March, rounding off a strong quarter for the world’s manufacturers, even as exporters fear a rise in U.S. protectionism could snuff out a global trade recovery.

China again led the way, with an official manufacturing index expanding at the fastest pace in nearly five years, while factory surveys on Monday showed encouraging growth as well in Japan, India and much of emerging Asia.

Higher commodities prices have helped boost the value of exports, along with a global thirst for electronic gadgets, but many countries are reporting stronger sales volumes as well, even as the new Trump administration starts to flex its muscles on trade.

“Asia’s economic backdrop remains solid with most countries remaining above the key threshold level of expansion, though U.S. trade protectionism fears is the biggest uncertainty for now,” said Aidan Yao, an economist at AXA Investment Managers in Hong Kong.

The agenda: British manufacturing sector in focus

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s a new month, which means a new flurry of reports on the world’s manufacturing sector.

At 9.30am we find out how Britain’s factories fared in March. Economists predict another month of solid activity, with the weak pound providing a cushion to Brexit uncertainty.

The consensus is that the UK manufacturing PMI will rise to around 55.1, up from 54.6 in February. That would signal faster growth, and a pretty strong start to 2017.

Before that, we get figures from across the eurozone. And again, economists expect some decent figures, which would indicate that Europe’s recovery is continuing to pick up.

Michael Hewson of CMC Markets has rounded up the predictions:

We get to see the latest numbers from Spain, Italy, France and Germany, all four of which have shown a steady improvement since the beginning of the year, and which are expected to come in at 54.6, 55.2, 53.4 and 58.3 respectively, helped in no small part by the weaker euro.

Any reading over 50 points shows growth, so these reports could drive Germany’s stock market to a new record high:

Then at 10am, we get the latest eurozone unemployment figures. Economists reckon the jobless rate could fall to 9.5% in February, which would be its lowest since 2009!

Investors will also be thinking about geopolitics, where the situation looks rather tense.

Donald Trump will be entertaining Chinese leader Xi-Jinping at his Mar-a-Lago golf course in Florida later this week, and there could be fireworks if the president brings up issues like currency manipulation and globalisation.

And then there’s Brexit, where the UK government is now vigorously defending Gibraltar’s sovereignty. Four days after Article 50 was triggered, the first comparisons with the Falklands Islands have begun....

Updated

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