Euro-Area Factories Returned to Growth Amid Severe Jobs Cuts

Factories across the euro area saw an even stronger return to growth in July than initially reported, marking the region’s first manufacturing expansion in one-and-a-half years.

With consumer goods performing particularly well, IHS Markit’s manufacturing PMI came in at 51.8, beating a flash estimate and higher than June’s reading of 47.4. At the same time, companies in the sector continued to see backlogs of work decline and cut jobs for the 15th successive month -- a potential warning sign for future activity.

Euro-Area Factories Returned to Growth Amid Severe Jobs Cuts

The headline reading in Germany, Europe’s largest economy, was also higher than initially estimated, but the report also showed “deep cuts” to employment.

The data highlight the critical point that the region found itself in as it entered the third quarter, echoing similar trends from across Asia where activity also saw a modest pickup. While Europe’s initial rebound has been swift according to some metrics, question marks remain over whether momentum can be sustained.

“The job numbers remain a major concern,” said Chris Williamson, chief business economist at IHS Markit, “especially as the labor market is likely to be key to determining the economy’s recovery path.” He added that while the rate of job cuts has eased since the height of the crisis, it was still greater than at any time since 2009.

Growth in new orders did outpace production in July, suggesting that output gains may continue in August, Williamson said. Still, the next few months’ numbers will be “all-important in assessing whether the recent uplift in demand can be sustained.”

©2020 Bloomberg L.P.

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