Spain: Composite PMI improves in October on stronger manufacturing activity
October 5, 2016
The Markit Purchasing Managers’ Index (PMI) Composite Output Index came in at 54.4 in October, which was above September’s 54.1 reading. As a result of the slight improvement, the index is now further above the 50-threshold that separates expansion from contraction in business conditions.
The Markit Spain Manufacturing PMI rose to 53.3 in October from 52.3 in September, which was the highest figure since April. The improvement in operating conditions in the manufacturing sector was reflected by an increase in both production and new orders. Heightened activity saw firms recruiting at an accelerated pace as well as increasing purchases of raw materials. Despite the expansion in staffing levels, backlogs of work rose at a faster rate due to buoyant new orders. Regarding prices, firms managed to pass an increase in input prices onto clients, albeit only marginally.
Meanwhile, the Markit Spain Services PMI inched down to 54.6 in October from September’s 54.7. The modest decrease was the result of a slowdown in new order growth as well as in the rate of job creation—which eased for the fourth month running. Backlogs of work decreased for the first time in eight months as a result of a slower pace in incoming orders. Nonetheless, activity in the services sector remained firm, while business confidence strengthened on the back of higher-than-expected new order growth and reduced political uncertainty. Higher prices for raw materials saw the largest increase in input costs for companies since May 2015. However, they were unable to pass higher costs for materials onto consumers, which left output prices largely unchanged.
On the slight decrease seen in services sentiment, IHS Markit analyst Andrew Harker commented that, “Companies suggested that sales wins were often a result of promotional activities. In fact, output prices were left unchanged on average, putting a squeeze on margins given accelerating cost inflation. IHS Markit forecasts Spanish GDP to rise 3.1% in 2016, easing to 2.0% in 2017.”
Author: David Ampudia, Economist