Bank Austria Purchasing Managers’ Index in February:
Industry’s downward trend loses momentum
- Bank Austria Purchasing Managers’ Index increases for the first time in six months, but still a clear contraction process
- Slow order intake prolongs decline in production
- Industry recovery at the earliest at the end of 2009
The downward trend in Austrian industry is beginning to slow down. For the first time in half a year, the seasonally adjusted Bank Austria Purchasing Managers’ Index (PMI) has improved slightly. However, following the record low of 33.1 in January, this month the indicator reached its second-lowest level since data started being collected ten years ago. “The increase in the current Bank Austria Purchasing Managers’ Index to 34.6 points only shows that the decline in Austrian industry has slowed down. But the downward trend in the producing sector is continuing at a rapid pace,” says Stefan Bruckbauer, deputy chief economist at Bank Austria. The Bank Austria Purchasing Managers’ Index came in under the neutral 50-point mark, indicating contraction, for the eleventh month in a row in February.
“Despite a dim light at the end of the tunnel, there are currently no signs of the difficult situation for industry letting up any time soon,” emphasises Bruckbauer, adding, “The companies surveyed sharply curbed their production output in February, although not as drastically as around the turn of the year.” The perpetual decline in production is a result of continued weak demand. Domestic companies have been registering a decrease in new business since April 2008, and the global economic downturn has forced many companies, particularly Austrian exporters, to record major losses in their order books. Only 14 per cent of the companies surveyed posted growth, while 48 per cent saw decreases in foreign orders.
Smaller inventory, but faster delivery
Domestic industry is reacting to the difficult market conditions and beginning to prepare itself for an extended period of weakness. Despite another drastic decline in purchase prices – in particular for crude oil, steel and energy – companies reduced their stocks of primary materials at a new record level in February. They also continued to decrease their stocks of finished goods in February. “Inventories are currently being reduced as a result of the low level of turnover. But they are also being kept to a minimum in order to cut costs and increase liquidity,” explains Bank Austria economist Walter Pudschedl. However, as a result of extremely slow order intake at the moment, the delivery times for domestic industry are becoming shorter. In February the time between ordering and delivery decreased more than ever before in the history of the survey.
Industry lays off even more employees
Domestic industry continues to adjust its personnel capacities in accordance with the low level of production demand. The number of employees has steadily been declining for ten months now, and the latest employment index was down to just 31.4. Employment is therefore decreasing at a new record speed. Over 40 per cent of the companies surveyed in February had to cut jobs, while only 3 per cent hired new employees. The sector as a whole now employs around 2 per cent less people than last year. The number of unemployed persons from the material goods production sector has risen by 8,000 in the last year, an increase of nearly 30 per cent. Based on the results of the current survey, the job situation in industry is expected to deteriorate drastically again in the coming months, especially in early summer, when short-time working agreements will expire at many companies without them seeing an improvement in order intake. Negative developments will have a stronger impact on the entire labour market. “The number of those employed in the entire economy will also fall in 2009. Unemployment will rise considerably from last year’s level of 5.8 per cent to 7.0 per cent this year,” predicts Pudschedl. A total of over 40,000 people will lose their jobs.
No signs of recovery for industry
After the rapid decline that started in the autumn of 2008, the Bank Austria Purchasing Managers’ Index is now heading slightly upwards. However, this only shows that the pace of Austrian industry’s nosedive has slowed. The country’s managers still face a considerably worse business situation than last month. In light of incessantly gloomy international conditions and the low level of domestic and export orders, there are still no signs of stability let alone recovery for Austria’s industrial activities. Nevertheless, Bank Austria’s economists expect that the continued easing of monetary policy on the part of the European Central Bank and the implementation of governmental economic stimulus packages will start to have positive effects both internationally and within Austria at the latest by the end of 2009. “Following the moderate increase of nearly 2 per cent in 2008, production output by Austrian industry will fall by an average of over 6 per cent in 2009,” predicts Bruckbauer. In the face of difficult global conditions, there are also significant downside risks. Industry will undoubtedly suffer the greatest losses as a result of the current economic recession, with the export-dependent sectors feeling the greatest effects.
Note: PMI figures above the 50.0 mark indicate growth compared to the previous month; readings below the 50.0 mark indicate contraction. The greater the divergence from 50.0, the greater the change signalled. This report contains the original data from the monthly survey of purchasing managers from industrial companies in Austria. The survey is sponsored by Bank Austria and has been carried out by Markit Economics under the auspices of ÖPWZ, the Austrian Productivity and Efficiency Centre, since October 1998.
Enquiries: Bank Austria Economics & Market Analysis
Walter Pudschedl, Tel. 05 05 05 ext. 41957;