UniCredit Bank Austria Purchasing Managers’ Index in February:
Much steadier recovery in Austrian industry
- The UniCredit Bank Austria Purchasing Managers' Index rose significantly in February to 58.3 points - the highest it has been in three years
- Significant expansion in production output as a result of increased domestic and foreign demand
- Job creation in industry is gaining speed
- Supply bottlenecks surrounding raw materials and primary products have caused the largest cost increase in 10 years and the greatest increase in delivery times since the survey began in 1998
- Optimism is on the rise: The immediate business outlook is brightening and production expectations for the next 12 months have risen to the highest level since the beginning of 2018
Following the promising start to 2021, Austria's industrial economy has continued to improve. "The UniCredit Bank Austria Purchasing Managers' Index rose to 58.3 points in February. This means that the indicator has exceeded the threshold of 50 points for the eighth month in a row, indicating continuous recovery of domestic industry that, even recently, has noticeably accelerated", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. This improvement in the value compared with the beginning of the year shows that development in Austria is fully in line with other European countries. In February, the preliminary Purchasing Managers' Index for the manufacturing industry in the eurozone reached a three-year high of 57.7 points, which was driven by strong growth in German industry and - for the first time in the current upswing - noticeably accelerated growth in French industry.
"The strong improvement in the industrial economy in February was a result of significant expansion of production in the wake of the significantly more favourable order situation. Job creation accelerated noticeably following the initial increase in the number of employees seen in the previous month. Although business expectations continued to brighten, in the coming months, this increase in primary material delivery times – the greatest since 1998 – could not only trigger a sharp rise in costs but also stall the momentum of recovery", says Bruckbauer.
Distinct improvement in the order situation
Demand for products made in Austria increased noticeably in February. While the past few months have seen the majority of orders coming from abroad, for the first time since autumn, domestic demand in February was equally as high. "The strong growth in new business from Austria and abroad led domestic industrial businesses to significantly expand production in February. The backlog of orders nevertheless rose significantly due to supply bottlenecks on the suppliers' side, which somewhat prevented greater increases in production", says UniCredit Bank Austria Economist Walter Pudschedl. However, the dampening effect that supply bottlenecks had on production was manageable. At 56.9 points, the production index was ultimately higher than the combination index of new orders and order backlog for the first time in two months.
Supply problems and strong demand reduce inventory levels
Amongst companies surveyed, in February there was a significant rise in the number of supply problems resulting from capacity bottlenecks at intermediate suppliers or in transport, in particular due to a lack of available ship containers. More than half of businesses said that they had been affected by delivery delays. The corresponding index shows the greatest increase in delivery times within domestic industry since the first survey in October 1998.
In order to ensure the availability of primary products and due to concern surrounding rising prices, domestic businesses have tried to increase the volume of raw materials and primary products beyond what they actually need for production. Despite the fact that the volume purchased saw the greatest increase in three years, it was still lower than production activity, meaning that levels in stocks of purchases fell again in February, and slightly more than they had in the previous month. In order to meet high demand, domestic businesses were selling directly from their warehouses. As a result, inventory levels in stocks of finished goods saw their most severe decline for 11 years.
Sharp rise in costs
The combination of increased demand and supply shortages led to a sharp rise in average input prices in February. The highest price increases in a decade have been driven predominantly by the rise in prices of chemicals, plastics, metals, and, in particular, steel. Higher transport costs were also a burden for domestic businesses. "Fierce competition meant that manufacturers were unable to fully offset the sharp increase in purchasing costs by passing it on to their customers. Despite the greatest increase in output prices in almost three years, on average, the earnings situation in domestic industry deteriorated again in February", says Pudschedl. In fact, the index ratio of input and output prices indicates the worst monthly earnings performance in more than ten years.
More jobs in industry once again
"In the wake of the succession of job cuts seen since the pandemic began, domestic industrial businesses created additional jobs for the first time again in January. The pace of job creation accelerated in February. The employment index rose to 54.5 points - the highest it has been in two years. Nevertheless, viewed on average and taking into account the production ramp-up, productivity in the sector has improved once again", says Pudschedl. For nine months now, the ratio of the production index to the employment index has indicated an improvement in productivity in domestic industry, following the sudden and massive deterioration triggered by the outbreak of the pandemic in the spring of last year.
Confidence in industry continues to grow
The continued - and even accelerating - upwards trend of the UniCredit Bank Austria Purchasing Managers' Index shows that, with global support, recovery in Austrian industry is becoming steadier. Although production in the consumer goods industry continues to decline, the capital goods industry and semi-finished production are expanding significantly and the development of the various industrial sectors, which has so far been highly divergent, is now weakening.
The index ratio between new orders and stocks of finished goods has increased and directly indicates a dynamic, sustained upturn in domestic industry, as existing stock will not be sufficient to fulfil orders received without further ramping up production. "The interruptions in supply chains and the sharp rise in the price of some primary materials could slow the pace of recovery in the coming months. However, these do not constitute long-term obstacles to recovery in industry, meaning the business assessments of domestic companies have improved for the next 12 months. The expectation index has climbed to 67.7 points, its highest level in more than three years", concludes Bruckbauer.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, tel.: +43 (0) 5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at