Modest Growth in Netherlands’ New Orders Drives PMI to Six-month High in August
August’s survey indicated a slight worsening of manufacturing operating conditions as output, employment and stocks of purchases continued to fall. However, the rates of contraction eased since the previous month, while there was a modest increase in new order volumes, in part encouraged by continued price discounting.
The headline NEVI Purchasing Managers’ Index (PMI) registered 49.7 in August, up from 48.9 in July and a six-month high. The latest reading was indicative of only a slight deterioration in manufacturing operating conditions.
Helping to push the headline index higher over the month was a modest improvement in new order volumes, the first growth recorded in half a year. There was some evidence that market conditions were slightly better – particularly in foreign markets as reflected by the strongest gain in new export orders for 15 months.
Sales growth was in part driven by discounting, with output charges cut for a second successive month in August. Panellists reported that markets remained highly competitive, while others noted that they were able to offer discounts following a further reduction in input prices.
Latest data showed prices paid for inputs fell for a third successive month, albeit to a much lesser degree than in July. Oil-related products and steel were reportedly lower in cost during August.
The latest survey again pointed to an element of spare capacity in the Dutch manufacturing sector as output and backlogs both continued to fall despite modest growth of new orders.
Production was reported to have decreased for a fifth successive month, while volumes of work in hand but not yet completed were reduced for a seventeenth survey period in a row. Panellists noted efforts to satisfy existing orders directly out of stock wherever possible, leading to a slight reduction in inventories of finished goods in August.
With evidence of excess resources in the sector, a reduction in manufacturing employment was recorded during August. Payroll numbers have now fallen for five months in succession, although the latest fall was only marginal. Evidence from panellists suggested natural turnover (such as the non-replacement of leavers) as the primary method of lowering staffing levels.
Finally, purchasing activity was again reduced in August, extending the current period of contraction to 14 months. Modest cuts to purchasing reflected lower output requirements and efforts to improve cash flow by cutting inventory holdings. A further fall in stocks of purchases was subsequently recorded.
Paul Smith, Senior Economist at Markit commented: “The headline PMI edged closer to the 50.0 nochange mark in August, led by a modest improvement in new orders, with exporters in particular seemingly benefiting from steadier market conditions.
“However, there was evidence that growth was achieved via discounting and promotional offers suggesting that underlying demand remains relatively fragile. With spare capacity persisting in the sector, it will therefore take a number of months of continuous new order growth to say that the sector is in a true recovery.”