Bank Austria Purchasing Managers' Index in May:
Industrial sector continues to lose momentum
- Bank Austria Purchasing Managers' Index drops to a 10-month low but is still above the 50 points threshold and therefore signals growth
- Moderate recovery in Europe as pillar of growth for the Austrian industry
- Austria's industry, however, is adversely affected by the economic downturn in emerging markets
- In spite of positive signals, price and inventory trends underline the moderate industrial momentum
- Austria's industry has been creating new jobs since the beginning of the year but increased capacity utilisation and restructuring are a drag on job creation
After a promising start to the year, Austrian industry has been lacking momentum ever since. "The Bank Austria Purchasing Managers' Index decreased slightly to 50.9 points in May. Though the indicator is still signalling growth in the Austrian industrial sector, the recovery has slowed down significantly," explains Stefan Bruckbauer, Chief Economist at Bank Austria. While the Austrian Purchasing Managers' Index was above 54 points around the turn of the year, indicating a surge in growth in Austria’s industry, the pace of industrial recovery has slowed down considerably since then. In May, the indicator even reached the lowest value in almost a year. Our monthly survey among Austrian purchasing managers shows a slowdown in the industrial sector in May with a very modest increase in production activity as a result of slack demand. Austria's industry is feeling the effects of the clear economic downturn in emerging markets, especially in China and Russia, and the recovery in the euro area is still too weak for the time being," explains Bruckbauer.
The Bank Austria Purchasing Managers' Index experienced the most significant downward correction in May due to the downturn in production activity. The production index fell by 1.4 points to 51.9 points. This component thus accounted for almost two-thirds of the deterioration of the overall indicator compared to the previous month. "The lower increase in production in May is a consequence of the fact that new business has almost come to a standstill. At least, weakening domestic demand was offset by new (although not many) export orders," says Walter Pudschedl, Economist with Bank Austria. Due to the far-reaching stagnation in new business, the order backlog remained no more than stable. Nonetheless, purchase volume rose slightly, in part because an imminent increase in demand was expected.
Due to the difficult market environment, many Austrian industrial companies fell behind with deliveries, which led to an involuntary increase in the stock of finished goods. Furthermore, for the first time in five years, stocks of finished goods were intentionally increased as demand was expected to increase again. "Since growth in industry was only moderate, companies were required to be more careful in their inventory management. In May, primary material stocks were further reduced in order to improve the liquidity situation and reduce the amount of capital tied up. This, however, led to longer delivery times," explains Pudschedl. For the tenth time in succession, insufficient stocks held by suppliers were the main reason for the delay in delivery times.
"The flat trend in industrial activity is also reflected in current price movements. As important raw materials such as copper and steel became cheaper, purchase prices decreased and selling prices were also lowered due to low demand and strong competition," says Pudschedl. Compared to the previous months, the decrease in prices has slowed perceptibly in bothpurchasing and sales. Thus, some suppliers could even push through price increases due to the market situation.
The increase in production activity which started a year ago has allowed for a moderate increase in employment in the Austrian manufacturing sector since the beginning of 2014. Although the increase in production recently weakened, additional jobs were also created in May on average. Restructuring measures in many companies, however, also led to job cuts. In total, a seasonally adjusted average of 584,000 employees worked in the manufacturing sector in the first few months of this year.
The current Bank Austria Purchasing Managers' Index shows a further slowdown of the industrial sector after the promising start to the year. Austrian industry continues to grow but is solely benefiting from foreign demand at the moment. But foreign demand has tended to diminish in the past months, mainly due to the economic slowdown in emerging markets. As expected, the recovery in Europe has become more stable and the German economy has picked up strongly. Many other European countries, including Austria's important trading partner Italy, are still being affected by a lack of momentum.
The Purchasing Managers' Index of manufacturing industry within the euro area decreased by almost 1 point to 52.4 points compared to the previous month. In this respect, Germany's Purchasing Managers' Index was also a major factor, which decreased to 52.9 points in May while France's Purchasing Managers' Index even fell below the growth threshold of 50 points. "Purchasing Managers' Indices of European countries for May do not suggest more support for Austrian industry than was the case in the first months of the year. Even if no perceptible stimulus for Austria's industrial cycle is discernible at present, the Austrian manufacturing sector can continue the moderate growth achieved in the spring," says Bruckbauer. The recovery in the euro area will gain momentum.
Queries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, phone: +43 (0) 50505 41957;
Please note: Values of the PMI above 50.0 indicate growth compared to the previous month. Quotations below 50.0 indicate a decline. The further away from 50.0 the values are, the larger are the growth or reduction tendencies. This publication contains original data from the monthly survey amongst heads of purchase of the Austrian industry sponsored by Bank Austria and performed by Markit Economics under the patronage of the ÖPWZ (Österreichisches Produktivitäts- und Wirtschaftlichkeits-Zentrum = Austrian Centre for Productivity and Efficiency) since October 1998.