Spain: Composite PMI edges down in March, momentum shows few signs of waning
April 5, 2017
The Markit Purchasing Managers’ Index (PMI) Composite Output Index edged down to 56.8 in March from 57.0 in February, which marked the second best reading in a year and a half. The index remains comfortably above the 50-point threshold that separates expansion from contraction in business activity.
After jumping in February, operating conditions among Spanish service providers eased slightly in March. The Markit Spain Services PMI dipped from 57.7 in February to 57.4 in March, still signaling healthy rates of expansion in the sector. Improvements in market conditions helped firms secure greater volumes of new orders, which in turn led to increased backlogs of work for a second consecutive month and prompted companies to increase their staffing levels. Employment actually expanded at the fastest pace in eight months. Healthy new order growth and improving conditions also saw sentiment among service providers reach a 15-month high. Input prices also continued to increase in March, primarily reflecting increasing costs from newly-added staff. Companies, however, were largely able to pass these costs onto customers, with the rate of inflation being the fastest since July 2007. As noted by Andrew Harker, Senior Economist at IHS Markit, “the coming months will show how client demand holds up in the face of sharper price rises.”
Meanwhile, the manufacturing sector experienced a quicker slowdown in operating conditions. The Markit Spain Manufacturing PMI fell from February’s 54.8 to 53.9 in March, the weakest expansion among manufacturers since October of last year. Although still comfortably inside growth territory, output, new orders and staffing levels all rose at slower rates in March. Business sentiment, however, remained largely positive, with prospects for new order growth cushioning the recent weakening in manufacturing conditions. Regarding prices, Andrew Harker comments: “Weaker growth potentially reflects the impact of building inflationary pressures. Both input costs and output prices rose at rates rarely surpassed over the past six years, testing the resilience of customer demand. However, firms remain confident that output will continue to rise over the coming year on the back of new order growth, suggesting they are comfortable in passing through higher cost burdens to clients.”
Author: David Ampudia, Economist