Solid Eurozone PMI Hides Disappointing Production Growth

A strong headline PMI reading has masked just how business conditions are currently tougher for manufacturers. Although demand is strong, as reflected by a further solid improvement in new orders, supply chains continue to worsen at a worrying rate.

However, the details behind the headline PMI tell a different, but worrying story; shortages of inputs have restricted production growth so far in the fourth quarter to the weakest seen over the past year and a half.

Manufacturers in the Eurozone had a bumper month in November. The IHS Markit Eurozone Manufacturing PMI increased from 58.3 in October to 58.4, marking the first rise in the headline index since June.

The latest reading was not only far above the 50.0 no change level, but also almost seven points higher than the survey’s per-pandemic long-run average of 51.7.

Supply delays spiked to a record high in May 2021 and have since continued to deteriorate at rates surpassing anything ever seen prior to the pandemic.

These shortages of inputs have restricted production growth so far in the fourth quarter to the weakest seen over the past year and a half. At 53.5, the average output index reading for far in the fourth quarter is only slightly above the pre-pandemic long-run average of 52.9.