The Spanish manufacturing sector maintained growth momentum at the end of the first quarter of the year as business conditions improved solidly during March.
Further marked rises in output and new orders encouraged firms to take on extra staff at the strongest pace since June 2007. The recent weakness of the euro impacted on the sector, helping lead to a rise in exports. However, the depreciating currency resulted in higher costs of imported items.
The seasonally adjusted Markit Spain Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – ticked up fractionally from 54.2 in the previous month to 54.3 in March, thereby signalling a further solid improvement in operating conditions. The health of the sector has now strengthened in each of the past 16 months.
Manufacturing production rose for the sixteenth month running in March, with the rate of expansion largely unchanged from February. Higher new orders was reportedly the main factor leading output to increase.
Despite easing from the previous month, the rate of growth in new orders remained solid in March with higher new business reported from both domestic and export markets. Panellists indicated that new business from abroad was boosted by the relative weakness of the euro, particularly against the US dollar.
Another impact of euro weakness was a rise in the cost of imported items. This contributed to the first increase in input costs in three months, albeit one that was relatively slight. Nonetheless, companies continued to lower their output prices in March in order to secure new business. The rate of decline was unchanged from the previous month.
Rising new business contributed to another solid accumulation of backlogs of work, and companies increased their employment for the fifteenth month running. Moreover, the rate of job creation quickened to the strongest since June 2007.
Manufacturing firms continued to raise their purchasing activity during March, in response to higher new orders and greater production requirements. Increased demand for inputs resulted in a further deterioration in vendor performance.
Moreover, lead times lengthened to the greatest extent for one-and-a-half years.
Growth of purchasing activity was not sufficient to prevent a drop in stocks of inputs, although the pace of reduction was only modest. Stocks of finished goods also decreased, as firms used inventories to help fulfil new orders.
Comment:
Commenting on the Spanish Manufacturing PMI® survey data, Andrew Harker, senior economist at Markit and author of the report, said:
“The Spanish manufacturing PMI data have shown consistently solid growth for a period of time, and March continued this trend. The highlight from the latest survey was the strongest rise in employment since mid-2007, as the labour market continues to recover. Meanwhile, the sharp reductions in input prices seen in the first two months of the year were not repeated at the end of Q1 as the weakness of the euro led to rises in the cost of imported items.”
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