The Markit Eurozone PMI Composite Output Index rose to a 27-month high in September, signalling the largest rise in activity since June 2011, according to the flash estimate. The flash PMI rose for the sixth consecutive month, up from 51.5 in August to 52.1. Business activity has now risen for three successive months, and September rounded off the strongest quarterly expansion since the second quarter of 2011.
Higher levels of business activity were driven by faster growth of new business. New orders increased for the second successive month in September, growing at the fastest rate since June 2011. The upturn was broad-based across services and manufacturing, although only the former saw growth accelerate in September.
Services activity rose for the second month running, expanding at the fastest rate since June 2011. This was fuelled by a second monthly increase in new business placed at service providers. Further expansion is also likely in the coming months as expectations about activity in one year's time improved to a one-and-a-half year high in the sector.
Markit said manufacturing output meanwhile rose for the third straight month, although the pace of growth slipped from August's 27-month high. Nevertheless, manufacturing has seen the strongest quarter of growth since the second quarter of 2011 in the three months to September, pulling firmly out of the downturn seen in the previous quarter. New orders in manufacturing likewise rose for a third consecutive month, though growth also eased from August's recent high.
New export orders for goods rose solidly, growing at a rate only slightly less than August's 27-month peak.
The upturn in new business inflows meant that backlogs of work stabilised in September, representing the first time that backlogs had not fallen since June 2011.
The improvement in demand signalled by the data on new business also led to fewer job losses. Employment fell marginally across the region, but the decline was the smallest since employment began falling in January 2012. Service sector employment stabilised, having fallen throughout the prior 20 months. Meanwhile the rate of manufacturing job losses eased to result in only a very modest drop in workforce numbers.
The survey provided mixed news on prices. Average prices charged fell, but at the slowest rate since May 2012. This was linked in part to an increase in input costs, which rose at the fastest rate since January. Higher oil prices was a key factor behind manufacturers' input costs rising for the first time since January. Higher costs were often passed on to customers, as factory gate prices rose slightly for the first time since May 2012.
Service sector input costs continued to rise but the rate of inflation eased slightly, in part reflecting low wage pressures. Service providers' charges meanwhile continued to fall, often reflecting the need to cut prices to win new business. That said, the decline was the smallest since May 2012.
By country, Germany saw business activity grow at the fastest rate for eight months as new business showed the largest monthly rise for over two years. Employment grew at the sharpest rate for 18 months as a result. While German service providers reported the biggest jump in activity for seven months, manufacturers reported the weakest increase in output since June.
Business activity in France rose marginally for the first time since February 2012. This reflected a stabilisation of new order inflows. Employment showed the smallest monthly drop in the current 19- month sequence as a result. Business activity returned to growth in the service sector, but manufacturers reported a faster decline in output.
Elsewhere across the eurozone, business activity rose on average for the second successive month, growing at the steepest rate since April 2011.
Manufacturing continued to grow, accompanied by the first noteworthy increase in service sector activity since May 2011. Employment meanwhile fell at the slowest rate for over two years.
Chris Williamson, chief economist at Markit said: "An upturn in the Eurozone PMI in September rounds off the best quarter for over two years, and adds to growing signs that the region is recovering from the longest recession in its history.
"It is particularly encouraging to see the business situation improved across the region. Although the upturn continued to be led by Germany, France saw the first increase in business since early-2012 and elsewhere growth was the strongest since early-2011.
"Employment continued to fall, though it is reassuring that the rate of job losses eased to only a very modest pace, suggesting that employment could start rising again soon.
"The overall rate of growth signalled by the Eurozone PMI remains modest, however, consistent with gross domestic product rising by a meagre 0.2% in the third quarter. While rising inflows of new business bode well for a further upturn in the fourth quarter, policymakers at the ECB will no doubt view it as too early to change their stance on keeping policy on hold for an extended period."
