Spain: Drop in composite PMI in April suggests softer growth dynamics
May 4, 2018
Weaker growth in both the services and manufacturing sectors led the IHS Markit composite Purchasing Managers’ Index (PMI) to drop slightly to 55.4 in April from 55.8 in March. Notwithstanding the sequential decline, the index remains comfortably above the 50-point threshold, indicating healthy expansion in business activity in the Spanish economy.
The IHS Markit services PMI fell from 56.2 in March to 55.6 in April. Business activity grew at the slowest rate in 2018 thus far but continued its four-and-a-half-year expansion. Despite the drop in the headline figure, new orders growth was solid, although pricing data reveals that firms may have used discounts to spur demand and maintain momentum in new orders.
Job creation continued to rise in April but slowed from March’s rate, an over 11-year high. Greater confidence in the 12-month outlook and increased business activity prompted companies to increase their staffing levels. Because of strong employment, firms’ outstanding business decreased for the first time in over a year. On the price front, input price inflation rose on the back of rising staff costs and higher fuel prices. Interestingly, businesses did not pass these costs on to consumers and output prices were stable, ending a 17-month-long run of price increases. Steady output prices signal firms may now be using discounts as a strategy for new business in a competitive market.
Meanwhile, the IHS Markit manufacturing PMI edged down to 54.4 in April from 54.8 in March, suggesting the manufacturing sector may be losing steam. The dip was driven by slower new order growth, which grew at the weakest pace in three months. Backlogs of work also rose at much weaker rate in April. Consequently, hiring activity moderated for the fifth consecutive month to the lowest rate in nearly two years; purchasing activity also weakened. Input cost inflation pressures eased further in April, although input prices were still elevated due to sharper prices for raw materials. Output price inflation softened in response. The bright spot of the report was a sharp acceleration in output growth.
Author: Lindsey Ice, Economist