2023.06.0112:56:00UTC+00Eurozone Factory Activity Shrinks On Falling Production, Orders

Euro area manufacturing activity contracted for the second straight month in May on falling production and new orders but firms continued to take additional staff, the purchasing managers' survey results showed.

Despite the deteriorating economic conditions, Eurostat data showed that the unemployment rate in the currency-bloc fell to a record low in April.

The HCOB manufacturing Purchasing Managers' Index fell to 44.8 in May from 45.8 in April, data from S&P Global showed. But the reading was above the flash score of 44.6.

The latest reading suggested that the manufacturing sector posted the steepest contraction in three years.

There was a strong downturn in factory production across the currency bloc. Output volume posted the biggest fall since last November. New orders dropped sharply and at the quickest pace in six months. Export orders posted the sharpest fall on record. With the decrease in new orders outpacing production in May, factories worked through their backlogs to help prop up output levels.

Manufacturers continued to recruit additional staff, extending the current sequence of job creation to 28 months. However, the increase in workforce was moderate and the joint-weakest over this period.

Stocks of purchases decreased for a fourth straight month to the greatest extent since October 2019. Eurozone manufacturers reduced their purchasing activity further as firms tended to utilize existing materials.

The average input lead times shortened drastically in May with the improvement in supply chain conditions.

There was a strong decline in input costs amid reports of falling supplier charges as well as decreases in energy prices. Input cost inflation hit the lowest since February 2016. Further, prices of goods leaving the factory gate dropped for the first time since September 2020.

Finally, manufacturers were optimistic regarding the 12-month outlook despite the prevailing weak business environment. Nonetheless, the level of positivity was subdued by historical standards.

The survey showed that the downturn in the manufacturing sector was geographically broad-based. The manufacturing PMI were below the 50.0 threshold in all big-four economies.

Germany's manufacturing sector contracted the most in three years in May amid a sharp decline in new orders. Manufacturers also turned pessimistic in the face of growing concerns about the global economy, geopolitical tensions and rising interest rates.

Germany's final manufacturing PMI eased to 43.2 in May from 44.5 in the previous month. The flash reading was 42.9.

The downturn in France's manufacturing activity was little-changed from April's 35-month low level. At 45.7, the indicator was down from the flash score of 46.1. April's reading was 45.6.

Italy's manufacturing sector also remained mired in a downturn. A fall in the PMI to 45.9 from 46.8 in the prior month pointed to the steepest contraction for three years. The reading was forecast to drop to 45.8.

Although moderate, Spain's manufacturing activity posted the joint-strongest decline in the year so far. The corresponding index edged down to 48.4 in May from 49.0 in April.

The euro area unemployment rate fell to 6.5 percent in April from 6.6 percent in March, official data revealed. In the same period last year, the jobless rate stood at 6.7 percent.

Compared with March, the number of people out of work decreased by 33,000 in April. Unemployment totaled 11.088 million.

The youth unemployment rate was 13.9 percent in April, down from 14.0 percent in the previous month.