Solid growth of Spanish manufacturing sector in November despite downturn in confidence
Growth of Spain's manufacturing economy strengthened again during November, supported by improved gains in both output and new orders. Jobs continued to be created as capacity pressures persisted, but confidence about the future softened amid worries over subdued trends in global autos production and demand. On the price front, cost pressures remained elevated amid reports of increased prices for steel and related products. However, margins remained under some pressure as output charges rose at a noticeably slower rate than input prices. The seasonally adjusted IHS Markit Spain Manufacturing PMI, a composite single-figure indicator of manufacturing performance, posted 52.6 in November. That was up from 51.8 during October and pointed to the strongest growth for three months. The PMI has now posted above the 50.0 no-change mark that separates growth from contraction throughout the past five years.
Both manufacturing output and new orders increased at stronger rates when compared to October. Growth was linked to the release of new product lines and an upturn in demand, both from domestic and foreign sales.
However, there were a number of reports that demand from the US had faltered, and that sales to autos producers were subdued. This was particularly felt in the capital goods sector, where both order books and production fell in November. This was in stark contrast to the consumer goods category, where output and demand both strengthened noticeably.
Overall employment continued to increase in the latest survey period, although the rate of growth remained modest (with outright falls seen in the intermediate and investment goods categories). Any recruitment was linked to capacity pressures, as highlighted by a third successive monthly rise in backlogs of work.
Manufacturers also increased their purchasing activity during November, broadly in response to rises in production and new orders. Higher demand placed some pressure on vendors and, amid reports of shortages in the supply of some goods, lead times for the delivery of inputs continued to lengthen.
Supply-side shortages also continued to underpin input price inflation, which remained elevated in November, especially amongst capital goods producers. Average output charges were subsequently raised, albeit at a modest pace that remained well below the equivalent measure for input prices.
Finally, business expectations were at their lowest level since June 2013. Despite plans to bolster investment and introduce new product lines, worries over political stability and the effect of the downturn in the autos industry served to depress confidence. This was especially noticeable amongst investment goods producers, where sentiment deteriorated to its weakest level in six years.
Commenting on the PMI data, Paul Smith, Economics Director at IHS Markit said "Manufacturing growth improved during November and suggests the sector is heading to year end on a slightly firmer footing than was envisaged in October. Both growth of output and new orders strengthened on the month amid reports of uplift in demand. However, a closer look revealed some worrying developments. Capital goods producers recorded net falls in output and new orders amid concerns over the recent downturn in autos production, particularly in key foreign markets. Such worries subsequently spilled over into expectations about output, which are now at their lowest since the summer of 2013, and point to a clear downside risk to growth in the coming months."
Source : Strategic Research Institute