Euro zone factories up pace in August

Strong orders for manufactured goods helped euro zone factory activity rise at the fastest pace in over two years in August and led to backlogs of work for the first time since mid-2011, a survey showed this morning.

The euro zone’s nascent recovery may be taking hold as survey compiler Markit said conditions improved across all major economies in the 17-nation region bar France.

New orders came in at their quickest rate since May 2011, suggesting the momentum will continue.

Markit’s Manufacturing Purchasing Managers’ Index (PMI) jumped to 51.4 from 50.3 in July - the first month the index had been above the 50 line that signifies expansion since February 2012. The final reading pipped an earlier flash figure of 51.3.

"Although gains are still only modest, companies reported the strongest improvement in business conditions for just over two years, with a pick-up in new orders growth suggesting the upturn will be sustained into September," said Chris Williamson, Markit's chief economist.

The euro zone escaped from a 1-1/2 year-long recession last quarter with growth of 0.3 per cent, supported by stronger than expected expansions in Germany and France, although a Reuters poll last month suggested growth would be weak for some time.

A sub-index measuring output, which feeds into the wider composite PMI due on Wednesday and seen as a good indicator of growth, rose to a 27-month high of 53.4 from July’s 52.3, in line with the flash estimate.

That growth in output is likely to follow through into next month as the new orders index jumped to 53.3 from 50.8 in July, its highest level since May 2011. For the first time in 27 months factories built up a backlog of work.

The Markit survey comes after data on Friday showed optimism in the euro zone’s economy improved sharply in August although unemployment remained stubbornly high in July, particularly in the region’s weaker members.

The PMI showed manufacturers reduced headcount for the 19th month in August and at a sharper rate than in July.

“The fact that companies remain reluctant to take on staff - due to the need to cut costs to boost competitiveness and offset rising oil prices - suggests that there’s a long way to go before the recovery feeds through to a meaningful job market improvement,” Mr Williamson said.

Reuters