Euro zone August factory growth holds up as prices rise

Euro zone manufacturing growth continued to expand in August but supply chain problems due to the Covid-19 pandemic were pushing up prices, according to a survey published on Wednesday.

The IHS Markit final manufacturing Purchasing Managers' Index (PMI) fell to 61.4 in August from July's 62.8, below an initial 61.5 flash estimate. This marked a second successive month in which growth has slowed in the sector since June’s record expansion.

An index measuring output, which feeds into a composite PMI due on Friday, fell to 59.0 from July's 61.1. A reading above 50 indicates growth.

Demand has risen with the lifting of Covid-related has driven demand but many firms have reported logistical troubles, product shortages and a labour crunch.

"Euro zone manufacturers reported another month of buoyant production in August, continuing the growth spurt into its 14th successive month," IHS Markit chief business economist Chris Williamson.

"The overriding issue was again a lack of components, however, with suppliers either unable to produce enough parts or facing a lack of shipping capacity to meet logistics demand."

Raw material shortages and a lack of freight capacity meant sellers to manufacturers were able to ramp up prices. The input prices index remained high at 87.0, although shy of July's record 89.2.

This meant manufacturers had to pass on the higher costs.

“Factory selling prices consequently rose steeply once again, albeit with some of the upward pressure alleviated by a slight cooling of input cost inflation, albeit with still-high materials prices adding to manufacturers’ problems,” Williamson said.

Euro zone inflation surged to a 10-year high last month, official data showed on Tuesday, challenging the European Central Bank's benign view on price growth.

The bank wants inflation at 2% but prices in the 19 countries sharing the euro rose 3% in August, fuelled by unusually large increases in the prices of industrial goods.

IHS Markit said manufacturers added to their workforce numbers in August to boost output capabilities, continuing the employment growth trend which started in February and with the rate of job creation down only modestly from July’s all-time high.

“However, a dip in future sentiment in August – linked to the peaking of demand, persistent supply chain issues and the spread of Delta variant – add to signs that both output and employment growth has peaked,” Williamson said.

In other data released on Wednesday, unemployment in the euro zone continued to fall, according to the European Union statistics agency Eurostat.

The rate fell to 7.6% in July from 7.8% in June and from 8.4% over the year. The seasonally-adjusted rate in the broader EU, including countries not in the single currency bloc, also fell by 0.2 percentage points over the month, dropping to 6.9% in July.

The agency estimated that 14.613m EU residents were out of work in July.