Financial News: Manufacturing Slump Damps Eurozone Private Sector Growth

Manufacturing Slump Damps Eurozone Private Sector Growth

(RTTNews) - Euro area private sector expanded for the fifth straight month in May but the pace of growth moderated due to a steep decline in the factory output amid a widening divergence in demand growth for goods and services, flash results of the purchasing managers' survey by S&P Global showed on Tuesday.

The flash HCOB composite output index fell to a three-month low of 53.3 in May from 54.1 in April. The score was forecast to drop moderately to 53.7.

Despite the decline, the private sector posted a robust expansion, which was the third strongest seen over the past year.

Although actual GDP data turned out to be weaker than suggested by surveys in the first quarter, the PMI survey suggested that the economy is expanding quite rapidly in the second quarter, Andrew Kenningham, an economist at Capital Economics, said.

The survey showed growth divergence between manufacturing and services, pointing to an increasingly uneven recovery.

The out-performance of services relative to manufacturing was the widest since January 2009.

The manufacturing Purchasing Managers' Index, or PMI, fell to 44.6 in May from 45.8 in the previous month, while the score was forecast to improve to 46.2.

The services PMI registered 55.9 in May compared to 56.2 a month ago. The reading was above the expected score of 55.6.

New order inflows in the service sector grew further, albeit at the slowest pace in three months. Meanwhile, manufacturing orders dropped at an increasingly steep pace. At the composite level, new orders grew only marginally.

Output growth exceeded the gain in new orders to a degree not seen since early 2009, the survey showed.

The growth was underpinned by companies fulfilling orders place in prior months, causing backlogs of work to fall at an increased rate.

Manufacturing employment grew at the slowest pace in 28 months, while service sector job growth was the second-strongest registered over the past year.

Optimism about the year ahead slid further from a 12-month high in February, down especially in manufacturing. In services, optimism reached a five-month low.

On the price front, the survey showed that prices charged for goods and services grew at the slowest pace in more than two years in May. Nonetheless, the rate of growth remained relatively elevated by historical standards.

Input costs in manufacturing dropped for a third straight month and at the sharpest pace since February 2016. In contrast, services sector input costs rose sharply due to higher wage and salary costs.

"The European Central Bank will have a headache with the PMI price data," Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.

Selling prices in the service sector actually rose more than in the previous month, a development that the ECB is watching with a wary eye, the economist observed.

"The upward movement that can still be observed here is keeping the central bank from taking an interest rate pause," de la Rubia added.

The survey showed that the expansion in May was led by Germany, where output grew the most in 13 months. Meanwhile, growth in France slipped to the lowest in the current four-month span of expansion. Despite the sharp downturn in manufacturing, Germany's private sector expanded strongly in May. The composite PMI posted 54.3 in May, up slightly from 54.2 in April. The reading was seen at 53.5.

However, the survey masked a start contrast in performance between services and manufacturing sectors. At 57.8, the services PMI rose to a 21-month high from 56.0 in April. The score was forecast to fall to 55.5.

At the same time, the factory PMI registered a 36-month low of 42.9 compared to 44.5 a month ago, while the reading was expected to rise to 45.0.

France's private sector continued to expand in May but at a moderate pace. The composite output index slid more-than-expected to 51.4 from 52.4 a month ago. The reading was seen at 52.3.

The services PMI registered 52.8, down from 54.6 in the prior month. The score was also below forecast of 54.2. The factory PMI rose to 46.1 from 45.6 in April. The expected score was 46.0. However, a score below 50.0 indicates contraction.

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