The Markit Eurozone PMI Composite Output Index fell from September’s 27-month high according to the October flash estimate, but remained above the 50.0 no-change level for a fourth successive month.
At 51.5, down from 52.2 in September, the flash PMI signal led an ongoing modest upturn in business conditions at the start of the fourth quarter, at a rate broadly similar to the trend shown over the third quarter. The third quarter had seen the highest average PMI reading since the second quarter of 2011.
The expansion was broad-based across the region, though there were signs of moderation in the bloc’s two largest economies. Growth slowed to a three-month low in Germany, while France registered only a negligible expansion as its PMI dipped closer toward neutrality. The rest of the eurozone meanwhile reported modest growth of activity for the third month running, representing the first period of growth for these countries since early - 2011.
New orders rose for the third consecutive month, but likewise showed an easing in the rate of increase to a weak pace.
The easing in growth of both output and new orders was driven by the service sector, where activity and new business both rose for the third consecutive month but at marginal rates. Manufacturing output growth, in contrast, accelerated slightly and new order growth was unchanged on September’s moderate pace.
The weakening order book growth trend led to a further drop in payrolls. Employment fell for the twenty-second consecutive month, with the rate of job losses strengthening slightly on September. Although employment rose marginally in France for the first time since February of last year, a modest decline was seen in Germany and a stronger rate of job shedding was recorded across the rest of the eurozone.
The volume of outstanding business fell marginally, suggesting current workforce numbers were, on average, sufficient to deal with workloads. This was despite a slight rise in manufacturing backlogs.
Input costs rose for the fifth month running and at the fastest rate since January, although inflation remained historically weak. Output prices continued to fall, but at the slowest rate since May of last year. Charges levied for services fell at the slowest rate for 17 months while manufacturers’ factory gate prices rose slightly for the second month in a row, showing the largest gain for just over one-and-a-half years.
Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:
"The dip in the PMI in October is clearly disappointing, but it would be unwise to read too much into one month’s data. It’s too early to say that the recovery is losing momentum. More important is that the survey data have been running in positive territory for four consecutive months now and indicate that the Eurozone economy expanded at a quarterly rate of 0.2% at the start of the fourth quarter, suggesting an ongoing, albeit sluggish, recovery.
Although modest, the expansion is reassuringly broad-based across the region, reflecting signs of economic recoveries becoming more entrenched in the periphery as well as ongoing expansion in Germany and stabilisation in France.
The dip in the PMI will remind policymakers that a sustainable upturn is by no means assured, and adds confirmation to the ECB’s view that the recovery is slow, uneven and fragile. Attention is likely to be focused on whether the region requires more policy action to boost the recovery rather than on the timing of any withdrawal of stimulus."
