Obviously, the order books of manufacturing businesses provide a good litmus test for the state of economic recovery since orders are only placed when absolutely necessary or in order to meet anticipated demand. Consequently, the news that Eurozone factory order books are at their best level since May 2011 will be very welcome. Indeed, the demand is reportedly sufficiently great that some factories are unable to keep up which could mean that new jobs will be created to meet the shortfall, however, this improvement in employment may be delayed.
Markit Manufacturing Purchasing Managers’ Index for August came in at 51.4, up strongly from the July figure of 50.3. With this type of index, any value above 50 indicates expansion in the sector being reported on and a value below 50 indicates contraction, but it is still a relative (rolling) measure rather than an absolute one. Of the 17 member Eurozone bloc, only France failed to see a boost in manufacturing demand. This is of concern because France represents the second largest Eurozone economy behind Germany.
Markit’s chief economist, Chris Williamson summed up the data as follows: "Although gains are still only modest, companies reported the strongest improvement in business conditions for just over two years, with a pick-up in new orders growth suggesting the upturn will be sustained into September. The fact that companies remain reluctant to take on staff - due to the need to cut costs to boost competitiveness and offset rising oil prices - suggests that there's a long way to go before the recovery feeds through to a meaningful job market improvement".
The Eurozone emerged from recession last quarter after 18 months of contraction. However, employment within the manufacturing sector has been trending lower for 19 months and employment always lags behind the recovery cycle.