Bank Austria Purchase Manager's Index in May:
Austrian industry continues to contract, but at a slower pace
- Bank Austria Purchase Manager's Index in May points to further contraction
- Continued weak order intake results in accelerated job losses
- Order activity may be poised for turnaround
- Upper Austria, Vorarlberg and Styria most affected by weak industrial activity
The sharp upward trend of the seasonally adjusted Bank Austria Purchase Manager's Index (PMI) in April lost much of its momentum in May, with the indicator rising only slightly to 39.3 points. This still represents a significant downturn of Austria's manufacturing industry, which has now been contracting for over one year. "The current Bank Austria Purchase Manager's Index confirms that Austria's industry is still in a deep crisis", says Stefan Bruckbauer, Deputy Chief Economist of Bank Austria, "The marginal 0.3 percentage point rise provides further evidence that the industrial sector is now slowly entering a stabilisation phase."
After a strong improvement of all components of the Bank Austria Purchase Manager's Index in the previous month, the trend in May is less consistent. The production index continued its upward trend, rising at a relatively fast pace. At 41.9 it has reached a level which is more than 10 points above the lowest point to which it fell in January. However, since the index was first launched, a lower figure has been reached only in the current business cycle and the threshold value of 50 is still not in sight. The encouraging trend in output is explained by the recent development in orders. While new business continues to decline, the index has recovered visibly in May. "The record slump in orders at the turn of the year is now a thing of the past, even if order levels are still insufficient to absorb current capacity. For this reason, Austrian industry has again accelerated the shedding of jobs in May", says Bruckbauer.
Most respondents once again substantially reduced procurement volume in May as a result of the continued downturn in new business and the ever thinner order books. "In this exceptionally challenging business environment Austria's industry is stepping up efforts to reduce stock in response to weaker demand and with a view to improving liquidity" says Bank Austria economist Walter Pudschedl. In May, stock of primary materials and finished goods was reduced at a new record rate. However, the index ratio of new orders to stock has risen to over 1 for the first time in 14 months, reaching the highest level in over two years. This is a clear sign that stock reduction activity should soon come to an end and that order levels should improve.
The current survey moreover shows that the cost situation of business owners has improved somewhat. In May, purchase prices of industry fell at more or less the same rate as in the previous month, reflecting a drop in steel prices and the success of business owners in negotiating discounts with suppliers. Due to strong competition, sales prices in May had to be cut more than in the previous month. "Substantially fewer of the companies covered by the survey had to lower their sales prices, while many more benefited from the falling purchase prices. Overall, price trends have had a moderate, positive impact on companies' profitability", Pudschedl maintains.
The output data now available for the first quarter of 2009 reflect the anticipated slump in industrial activity. Output has fallen by an average of over 13 per cent year-on-year. Based on the information provided by the Bank Austria Purchase Manager's Index, one can expect the downturn to lose momentum in the coming months, but no more. It is unlikely that the slump in industrial activity will reach its low point before the summer. A rapid turnaround is unlikely in light of the unfavourable global conditions; it is increasingly probable that industry will start to recover very slowly in the second half of the year. "Output will probably contract by well over 10 per cent in 2009 as a whole”, says Bruckbauer, "Amongst Austria's federal provinces it is those with the strongest industrial activity – Upper Austria, Vorarlberg, Styria and to a lesser extent Lower Austria – which will be hit hardest by the downturn."
Note: PMI figures above the 50.0 mark indicate growth in the manufacturing sector 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 among purchasing managers of 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.
charts (PDF; 27 KB)
Enquiries: Bank Austria Economics & Market Analysis
Walter Pudschedl, Tel. +43 (0) 50505 - 41957
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