Bank Austria Purchasing Managers' Index for July:
Austrian industrial activity drops off sharply
- Bank Austria Purchasing Managers' Index in July comes in at 50.8 points, the lowest reading in the last 20 months and just barely higher than the growth threshold
- Tangible losses in orders trigger first decline in production since June 2009
- Job creation in the industrial sector continues, but employment growth is steadily fading
- Forecast for industrial growth in 2011 nonetheless remains unchanged at 8 percent, and is the main driver for this year's economic growth of 3.1 percent
An end to two years of booming conditions for Austria's industrial sector is coming into view. "With less and less orders from the domestic market and abroad, Austrian manufacturers rolled back their production in July compared to the previous month. Purchased quantities and primary material inventories are both falling. But new jobs are still being created in the sector," said Bank Austria chief economist Stefan Bruckbauer, summarising the current developments in the survey of Austrian purchasing managers. "The Bank Austria Purchasing Managers' Index dropped to 50.8 points in July, which is the lowest level registered since December 2009. This is the fifth month in a row that the index has fallen, and it is now just barely higher than the growth threshold of 50 points," noted Bruckbauer.
For the first time in the last two years, Austrian manufacturing firms scaled back their production output in month-on-month terms. "As a result of the sharp drop in orders, the output index fell to 49.7 points in July," explained Bruckbauer. The downtrend in new orders continued to intensify, as customers' interest in investment has waned. "Demand from abroad is growing more and more subdued. In particular, demand for Austrian intermediate and investment goods was weaker in July. By contrast, consumer goods producers continued to register growth," said Bruckbauer.
Due to lower production needs, Austrian industrial companies reduced purchased quantities in July, for the first time in just over 18 months, with an especially pronounced decline in output by producers of investment goods. There were hardly any more delivery bottlenecks for primary materials and commodities, which slowed the increase in delivery times. "With purchased quantities declining, primary material inventories dropped mildly in July for the first time since the autumn of 2010, as many companies moved to optimise their inventories against the backdrop of a downturn in new orders and slower production. Sales inventories, on the other hand, continued to rise due to weak demand," explained Bank Austria economist Walter Pudschedl.
Despite the deceleration in orders and business activity, new jobs are still being created at Austrian industrial firms. "Since April 2010, employment has steadily been on the rise, with the result that there are now more than 573,000 people employed in manufacturing, which is almost 2 percent more than last year. Nevertheless, the weakening pace of industrial activity is already beginning to have an impact on employment growth, as the rate of increase has been steadily slowing for about the last half year," said Pudschedl.
"While the deterioration in the overall conditions for Austrian industry has led to a sharp slowdown in the pace of price increases for primary materials and commodities, price pressure still remains high. Sales prices only rose moderately in July, as only about ten percent of the surveyed companies were able to pass on the higher purchasing prices to their customers via higher sales prices," explained Bruckbauer. Consequently, the earnings situation of Austrian manufacturers remains tense.
The dynamic upswing in industrial activity, which has been the engine behind the overall economic recovery in the last two years, is now coming to an end. The July survey of Austrian purchasing managers clearly shows a broad-based slowdown in industrial activity. The current ratio of the index for new orders to inventories has fallen again, pointing to further declines in month-on-month production in the months to come. Double-digit yoy production growth , as was seen in the early months of this year, is thus a thing of the past. "The industrial sector, and along with it, the broader economy, will be slowing down to a much more relaxed pace in the months ahead. We still project that industrial production will grow at an annual average rate of 8 percent in 2011. Consequently, industrial production will be the main force behind Austria's projected economic growth rate of 3.1 percent," according to Bruckbauer. In 2012, however, the pace of economic growth will be considerably more subdued.
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 50505 - 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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