UniCredit Bank Austria Purchasing Managers' Index in April
Austrian industrial sector on slow path out of recession
- UniCredit Bank Austria Purchasing Managers' Index rises to highest level in a year in April at 43.5 points
- Drop in production output from domestic businesses less marked than in previous month as decline in new business slows once again
- Pace of job cuts declines in April but seasonally adjusted unemployment rate in sector sits at highest level in two and a half years at 3.7%
- Costs and sales prices fall at slower rate than in previous month
- Sharp reduction in quantity of purchases fuels further reduction in stock of purchases but sales problems see stocks of finished goods increase for first time in months
- Majority of domestic businesses expect production to increase within next 12 months. Future output index reaches 55.5 points in April
The Austrian industrial sector has yet to emerge from recession and slow progress is being made with the ongoing regrouping of the economy. "The UniCredit Bank Austria Purchasing Managers' Index was at 43.6 points in April. Following the setback in the previous month, this figure saw the moderate upwards trend of past months continue. Although the latest indicator marks the highest value in exactly one year, it falls well short of the 50-point mark that would signal growth in the domestic industrial sector", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer.
The weakening international industrial economy continues to slow development in the domestic industrial sector. "In the industrialised nations there had been no noticeable progress towards recovery by the start of the second quarter. The latest Purchasing Managers' Index for the manufacturing industry slipped back below the neutrality threshold in the US. In the Eurozone, the preliminary Purchasing Managers' Index fell to 45.6 points, weighed down by a significant decline in France. One positive for Austria, however, is that Germany did at least report a slight increase in the index to 42.2 points", says Bruckbauer.
Although the increase in the UniCredit Bank Austria Purchasing Managers' Index in April was modest, for the first time in three years all components of the indicator improved simultaneously. "The pace of production cuts, job cuts and the decline in new orders slowed at the start of the second quarter. Cost and price reductions also became less pronounced and the reduction in stocks of purchases slowed somewhat. Offsetting this improvement was the accelerated decline in purchasing volumes and the increase in stocks of finished goods — clear indicators of weak demand", says Bruckbauer, summarising the details of the monthly survey of Austria's purchasing managers.
New business declines less sharply
There was only modest demand for "Made in Austria" products at the start of the second quarter. New orders have been declining for exactly two years now. "New business declined once again in April compared to the previous month, but the new orders index rose to its highest level since summer 2022 at 43.5 points. This improvement was propped up primarily by the noticeably lower losses in the export business", says UniCredit Bank Austria Economist Walter Pudschedl.
Given the slowing of the decline in new business, domestic businesses have limited their production output to a lesser extent than in previous months. The output index rose slightly to its highest level in exactly one year at 45.7 points. This development was propped up by the processing of orders on hand, as illustrated by the rapid decline in the backlogs of work in April.
Unemployment in the industrial sector set to continue rising
With the decline in production slowing, the pace of job cuts in the Austrian industrial sector also slowed slightly in April. The employment index rose to 43.2 points, reflecting a three-month high.
In the context of the ongoing steps to adjust production to the decline in new business, employment in the domestic industrial sector began to decline exactly one year ago. Almost 7000 jobs have been lost in the sector since then. "Given the ongoing recession, more and more domestic businesses were forced to abandon the strategy of retaining qualified employees in order to be well prepared for potential future expansion of production. Over the past few months, the sharp decline in capacity utilisation has accelerated the need to adjust personnel capacity to the lower production requirements. In April, the seasonally adjusted unemployment rate in manufacturing rose to 3.7%, the highest level in two and a half years", says Pudschedl.
In an environment characterised by weak demand, the coming months are likely to bring continuing job cuts and a further increase in the unemployment rate in the industrial sector. If the second half of the year brings a recovery as expected, a turnaround in the labour market can be expected around the end of the year. "We expect the unemployment rate to rise to 3.7% on average in 2024, compared to just 3.2% in the previous year. Despite momentum increasing, the unemployment rate in the sector is expected to remain significantly lower than in the economy as a whole at 6.8%", says Pudschedl. Performance is likely to be noticeably worse in the industrial stronghold of Upper Austria and in Styria and Tyrol.
Decline in costs and prices slowing
Average purchasing costs continued to fall in April due to the decreasing demand for intermediate goods, but the decline has slowed noticeably. The corresponding input price index rose to 46.5 points, the highest level in a year, due in part to upwards pressure on chemical primary products. Lower costs and strong competition for new orders prompted a fall in producer prices again in April, albeit at a slower pace than in the previous month.
"Output prices fell more slowly than input prices in April, so on average the earnings of domestic businesses ought to have improved again somewhat. Since the start of 2023, costs in the industrial sector have been falling more sharply than sales prices. However, this divergent price trend, which on average led to an improvement in the earnings situation, was only just starting to emerge at the start of the second quarter", says Pudschedl.
Pressure on supply chains continues to ease
Delivery times reduced significantly again in April. Pressure on supply chains in the industrial sector has continued to ease. Although there were some delays due to strikes and problems in the Red Sea, these factors were offset by spare capacity from suppliers and by the generally weak demand for materials, which was reflected in significantly reduced purchasing volumes. In addition to the improved availability of primary materials, the reduced demand and liquidity considerations also led to a deliberate reduction in the stocks of purchases. For the first time in six months, however, stocks of finished goods increased slightly, due both to lower-than-expected demand and efforts to ensure full capacity utilisation.
Austrian industrial sector remains cautiously optimistic
Although the latest UniCredit Bank Austria Purchasing Managers' Index showed an improvement compared to the previous month, it pointed to a decline in production once more in April. In addition, the existing relationship between new business and stocks of finished goods suggests it will be possible to fulfil incoming orders in the coming months without ramping up production. Moreover, as yet there are no clear indications that the global turnaround in the warehouse cycle, with the accompanying modest revival in foreign trade, has started to take effect in the domestic industrial sector.
"Despite the limited positive indicators, Austrian manufacturers still anticipate production growth over the coming year, with hopes of a recovery in demand driven by interest rate cuts. Although the future output index for the year declined slightly in April from the two-year high seen in the previous month, it clearly exceeded the neutral threshold at 55.5 points", says Bruckbauer, adding: "Following the significant production declines in the first few months of this year, we anticipate that production will increase slightly on average for 2024 given the gradually improving framework conditions."
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, tel.: +43 (0)5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at