Euro area manufacturing activity loses steam as stockpiling surge fades in May

• Manufacturing PMI 51.6 vs 51.4 prelim
• Prior 52.2

Euro area manufacturing activity slows down in May as the stockpiling surge from April begins to fade. The headline manufacturing index is a two-month low with the output index dropping to a four-month low in May. That comes as demand conditions take a hit amid rising price pressures in general.

New orders rose at the fastest pace in four years during April, largely thanks to stockpiling, and that partially reversed in May. The volume of new orders stagnated on the month, partly driven by a fresh decrease in
new export orders.

Besides that, just note that the headline index is also exacerbated by the
suppliers’ delivery times component. The report highlights that: “With the respective
index signalling the worst delays since June 2022, its
contribution to the Manufacturing PMI was positive (longer
delivery times are historically associated with greater
manufacturing activity).”

For some context, intensification of supply chain delays are normally
viewed as a sign of busier vendors due to higher demand
and positive in terms of economic growth. However, the Middle East conflict is not a telling sign of that as the deterioration in vendor times is largely tied to the effective closure of the Strait of Hormuz.

Looking to inflation, the extent to which input prices rose was the
quickest in four years. Meanwhile, prices charged were subsequently
raised, and to the greatest degree in three-and-a-half years. All of this is going to eventually feed through to consumer prices, that especially if the Middle East situation doesn’t change in the weeks/months ahead.

This article was written by Justin Low at investinglive.com.