Bank Austria Purchasing Managers' Index in July:
Austria's industrial production lagging behind demand
- Bank Austria Purchasing Managers' Index over 60 for the fifth month in a row
- Output on the rise for a straight year
- Industrial recovery spilling over onto the labour market: faster job creation in July
- Growing order backlogs and longer delivery times and inventory cycles indicative of increasing capacity bottlenecks
- Current surge will last at least until late autumn, after which industrial activity will slow but remain a driver of the overall economic recovery
Austria's industry is maintaining the momentum it gained in April through the summer. "At 58.9, July's Bank Austria Purchasing Managers' Index is on par with the prior month and just slightly below the record reached in April of this year. A steady stream of new orders is filling the production schedules. Longer delivery times and price increases are clear signs of capacity bottlenecks that will trigger an even faster increase in output rates. The current rapid expansion of business is restoring many of the jobs that were lost in industry last year," said Bank Austria's chief economist Stefan Bruckbauer, summarising the current state of the domestic manufacturing sector.
Austria's industry has been enjoying an upswing for nearly a year now. This spring brought a new jump in growth, and the summer a new record high. "The index for production output fell somewhat in July compared to June, but is still at one of the highest levels ever measured at 60.2 points. The production index was consistently over 60 for each of the five past months. This is the first time that we have seen an expansion phase of this intensity and duration in the twelve-year history of the Bank Austria Purchasing Managers' Index," said Bruckbauer.
The ongoing industrial recovery is now also having a surprisingly significant effect on the labour market. "The initial caution is now being supplanted by increasing confidence about future business conditions, and companies have been taking on new staff again for four months. The creation of new jobs even accelerated again in July according to the survey of purchasing managers," said Bank Austria economist Walter Pudschedl. "Leased personnel is often being taken on as opposed to direct hires because of the greater flexibility, which does show that there still are worries about the future of the economy."
Rapid demand growth straining available capacities
Worries about how sustainable the current recovery will prove to be are still holding Austria's industry back. Many suppliers are not prepared to handle the increase in order intake that has been going on for more than a year now and that has accelerated especially rapidly since February 2010. Delivery times for raw and input materials have lengthened considerably again. Purchasing volumes are only increasing slowly because of the limited availability of many materials, including metals, chemicals and electronic components. "The procurement problems that many companies indicated in the current survey are preventing them from increasing their input materials stocks as they would wish to, and led to a rapid increase in the order backlog in July. The continued decline in inventories of finished goods is another clear sign that Austria's industrial firms are exercising caution in adjusting their production capacities to the current vigorous environment, and that they therefore cannot quite keep up with the rapid increases in demand," said Pudschedl.
Most of the components of the Bank Austria Purchasing Managers' Index dipped slightly in July, but remained close to their all-time highs. Austrian manufacturers will continue to enjoy very good conditions for some time, but the first signs that the current momentum will not last through to the end of the year have already made themselves apparent. The ratio of new orders to inventories, which has been a very reliable indicator of coming industrial activity in the past, worsened in July and is already considerably lower than the record levels reached at the end of 2009 and beginning of 2010. The dampening effects of the inventory cycle and the expiration of emergency fiscal programmes around the world do not bode well for the medium-term growth prospects. "The manufacturing sector, especially export-oriented segments, will continue to expand this year, but soon at a noticeably lower rate. Our current forecast of 4 per cent real growth in 2010 is at the low end of the range given the high pace of growth in the summer months," said Bruckbauer confidently. Industry will achieve the highest levels of growth by far of all sectors of the Austrian economy in 2010, and will be the primary driver of economic recovery in the country.
charts (PDF; 68 KB)
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 Austria
Walter Pudschedl, Tel. 05 05 05 ext. 41957;