Bank Austria Purchasing Managers' Index in June:
Orders for Austrian industry decline again
- Bank Austria Purchasing Managers' Index in June comes in at 53 points, down for fourth month in a row after peaking in February at 61.9 points
- Industry upswing loses momentum
- Production growth slows, employment still growing
- Industry still dynamic in 2011: production growth expected to be 8 percent, driven by steel and vehicle industry as well as mechanical engineering
- Industrial growth of only 5% forecast for 2012
After a very dynamic start to the year, Austrian industry is now increasingly showing signs of cooling down in 2011. "Orders flowing into Austrian industrial companies fell in June compared to the previous month. The order backlog is thinning with the arrival of fewer new orders, resulting in a tangible reduction in production growth. However, the robust increase in employment in the sector has continued to the middle of the year", reveals Bank Austria chief economist Stefan Bruckbauer, summarising the results of the latest survey conducted among purchasing managers in Austria. Since peaking in February at 61.9 points the indicator has steadily got worse. "In June the Bank Austria Purchasing Managers' Index sank to 53 points", said Bruckbauer. "Even though the current reading is the lowest level since the beginning of 2010, it is still above the 50-point threshold that indicates upwards momentum in the sector."
This cool-down in industrial activity is a broadly-based trend. All of the components of the Bank Austria Purchasing Managers' Index turned out weaker than in the previous month. The decline in the overall index in June was caused first and foremost by the deterioration in orders. "New orders fell for the first time in two years. Compared to the previous month, fewer orders were received in June both domestically and from abroad", revealed Bruckbauer. As a result of the weak development in new business the order backlog contracted for the first time since winter 2009.
In spite of the lower volume of new and follow-up orders, Austrian industrial companies still managed to boost their production output in June. "The pace of production expansion by Austrian manufacturers of material goods has been declining steadily since March, and in June was back down at the same level as December 2009", said Bank Austria economist Walter Pudschedl.
Yet the ongoing increase in production resulted in continued growth of employment at companies, despite the turndown in orders. "New jobs have now been created in Austrian industry for 15 months in a row. Although the pace of the employment growth has slowed quite considerably in the meantime, it is still rather robust", commented Pudschedl. Given the slowdown in industrial activity, the economists at Bank Austria expect to see an end to employment growth in industry – at least for the time being – in the second half of 2011.
The more subdued development of demand in June has really put the brakes on the rise in input prices. Yet various primary materials have gone up in price again, albeit very marginally, as seen last in September 2010. Only 30 percent of the companies surveyed had experienced higher input prices, in comparison to 44 percent in the previous month. But only 5 percent of those surveyed said lower costs had made a difference. "Average sales prices were bumped up as a result of the renewed increase in commodity and energy prices. Furthermore, purchasing prices are rising faster than sales prices, which is keeping pressure on earnings, although this situation is easing somewhat", explained Bruckbauer.
The slowdown in growth for the production sector is reflected in the development of inventories. Amidst modest increases in purchased quantities, primary material inventories remained nearly unchanged in June compared to the previous month. The increase in finished goods inventories was the fourth strongest since the survey began in October 1998. The ratio of "new orders relative to inventories" does not bode well for Austrian industry in the coming months. This ratio has fallen below 1 for the first time since April 2009, sending a clear signal that given existing inventory capacities the strength of demand will barely trigger any month-on-month increase in production in the coming months. "Annual growth rates for industry in the second half of 2011 will fall short of the 11.5 percent average registered in the first four months. We assume that industry over the entire year will generate production growth of 8 percent", said Bruckbauer.
Nonetheless, according to the estimates of Bank Austria economists, all central industrial sectors will recover their crisis-induced losses in the course of 2011. Producers of metal goods, mechanical engineering companies and parts of the electronics industry in particular will be able to post above-average double-digit growth rates, supported by their strong international competitiveness. The vehicle industry is also profiting from the solid position of individual companies, who in turn are benefiting strongly from their key customers, successful German manufacturers of premium cars.
"Growth in Austrian industry in 2012 will come in at 5 percent, lower than this year. This means that industry will remain one of the key drivers of economic growth in Austria in the coming year", said Bruckbauer. Construction-related industrial companies such as producers of metal goods and electronics companies will benefit from the increased stability in construction activity. The tight public-sector budgets will restrain activity, and this will impact on some of Austria's electrical engineering firms amongst others.
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. 05 05 05 Ext. 41957;
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.
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