Further Substantial Reduction in Spanish Manufacturing Output

August 01, 2012 /

Operating conditions for Spanish manufacturers continued to deteriorate in July, with further sharp falls in new orders, output and employment
recorded.

Input costs decreased for the second month running amid falling demand for raw materials and firms continued to lower their output prices in an attempt to boost demand.

The seasonally adjusted Markit Purchasing Managers’ Index (PMI) posted 42.3 in July. Although the reading was higher than the 41.1 recorded in June, it still represented a sharp deterioration of business conditions in the sector.

Spanish manufacturing production decreased for the fifteenth consecutive month in July. The rate of decline remained substantial, despite easing to the weakest in three months. Where output fell, this was largely reflective of a further decline in new orders.

Total new business declined sharply again, with respondents highlighting domestic markets as a particular source of weakness. That said, new
export orders also fell, extending the current period of reduction to 13 months.

Falling new orders was the main factor behind another depletion of backlogs of work. Outstanding business has fallen throughout the past year-and-a-half.

Employment also declined further during the month. Moreover, the rate of job shedding quickened marginally to the sharpest since December 2009.

Lower input costs were registered for the second month running as falling demand for raw materials led to declining prices. In turn, manufacturers
reduced their output prices markedly, with respondents highlighting attempts to stimulate demand as well as strong competition. Charges
declined at the fastest pace since February 2010.

Falling stocks at suppliers led to a further lengthening of delivery times in July. However, the deterioration was only marginal amid weak demand for inputs.

Purchasing activity decreased for the fifteenth consecutive month amid reduced production requirements. The rate of decline in input buying
remained considerable.

Spanish manufacturers continued with stock reduction policies in July, as pre-production inventories decreased at a steep and accelerated pace during the month.

Stocks of finished goods were also depleted, with the solid reduction in July broadly in line with that seen in June. Post-production inventories have fallen in each month since October 2011.

Andrew Harker, economist at Markit and author of the report, said: “The latest manufacturing PMI data for Spain highlight why so much attention is focused on the economy at the moment, as output and employment continued their downward trajectories.

“Demand continued to fall sharply moving into the second half of the year, with the domestic market reported to be particularly weak. The labour market continued to bear the brunt of the difficulties in the
sector as the rate of job cuts accelerated again.”

 

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