The pre-release of the EMU purchasing manager survey for February paints a picture of extraordinarily optimistic sentiment. The purchasing managers polled reported on rampant job creation on a level last seen over nine years ago and of growing order receipts and improving business prospects. However, the rising price pressure can only in part be passed on to customers.
The summarised Composite Index for Euroland climbed from 54.4 to 56.0 index points, the highest mark in 70 months. Here, sentiment improved in both industry and the service sector. It is also gratifying that according to Markit the good sentiment has also spread to economies over and above the two large EMU member states of France and Germany.
In February, German purchasing managers were extremely upbeat. The sentiment index for industry climbed from 56.4 to 57.0 index points and thus hit a high for the last 69 months, indicating that German industry is moving full steam ahead. In the service sector, the index actually jumped 1.0 point, although at 54.4 it still lags well behind industry. If one combines the two sectors, then private-sector sentiment is at present higher than it has been for almost three years. Precisely in industry, the survey shows that order receipts have surged. Output continues to rise, but not fast enough and as a result there has been clear growth in the backlog of unprocessed orders. It is therefore also not surprising that according to the purchasing managers, employment has continued to rise and the business prospects for both sectors are viewed very optimistically.
Somewhat surprisingly, sentiment appreciably improved in the French private sector. Although the index for manufacturing slipped 0.3 index points to 53.3 points, the sentiment index for the service sector soared significantly from 54.1 to 56.7 index points. As a result, the overall Composite Index climbed 2.1 index points to reach 56.2, higher than at any other point in the last 69 months. The good sentiment in the French private sector is strongly driven by the swiftly expanding service sector, where business activities, order receipts and employment intentions all improved. At the same time, the companies polled were largely unable to pass the growing price pressures caused by competition on to their customers, as sales prices fell for the eighth consecutive month. The companies again had a favourable assessment of business prospects for the coming 12 months.
The economic upturn in the Eurozone would appear, judging by the survey data, to be firming up in early 2017 and could in fact gain momentum. At any rate, European corporations seem to be very able to hold their ground in the current situation.