Eurozone PMI at 3-year Low

For the 11th month in a row, manufacturing PMI in the Eurozone has contracted. The manufacturing PMI index reading for June came in at 45.1, unchanged from May’s reading, but slightly better than the flash reading of 44.8 from earlier this month. The 2012 second quarter index reading was 45.4, the lowest since the second quarter of 2009.

And its not just the usual suspects. German PMI fell to its lowest reading in three years, marking the fourth consecutive month that the index has fallen below the neutral level of 50. A reading below 50 indicates that the economy is contracting. Markit Economics, which produces the index, provided some specifics about Germany:

June data highlighted another marked reduction in German manufacturing output, as shrinking new order volumes continued to squeeze production requirements. The reduction in new work extended the current period of deteriorating order books to 12 months. Softer demand from export markets was indicated again in June, with new business from abroad declining at a steep and accelerated pace. The latest decrease in new export orders was the second-fastest since May 2009, which firms attributed to lower spending across European markets and signs of a slowdown in China.

Germany’s ability to withstand the turmoil and contraction in the Eurozone has been the result of its manufactured exports. But now German unemployment has risen for the third consecutive month and the employment index is at its lowest point since February 2010. Backlog contracted for the tenth consecutive month, and new export orders declined for the fourth consecutive month. In fact, only Greece posted worse numbers than Germany on new export orders.

Germany’s problem is that its Eurozone partners are not buying German products. Only Ireland and Austria reported output growth or new business. And only Ireland did not report higher unemployment in June. Irish employment grew faster in June than at any time since December 1999. Ireland’s PMI reading in June was 53.1, up from 51.2 in May.

Markit’s chief economist summarized:

[T]he goods-producing sector contracted by around 1% in the second quarter, with this steep rate of decline looking set to accelerate further as we move into the second half of the year. Companies are clearly preparing for worse to come, cutting back on both staff numbers and stocks of raw materials at the fastest rates for two-and-a-half years.

Paul Ausick