How About European Manufacturing?

European manufacturing activity was much improved during September, with output rising for the first time in six months.

According to Reuters, PMI data for the month of September showed gains in output and new orders, although manufacturing employment continues to contract. The overall index improved to 50.1 during September from 49.1 in August. Manufacturing activity is improving in Germany and Italy, although conditions seem to be deteriorating in France.

Europe's manufacturing economy continues to stage a manufacturing recovery, although the pattern of growth is highly inconsistent. Germany was the worst off earlier this year, and so it is not unreasonable that the pace of acceleration in Germany's manufacturing economy is leading the pack. German industry is also more concentrated in producing capital equipment, and stronger business spending in the U.S., Eastern Europe and Asia will do more for Germany than France and Spain, which are more service-oriented. Opposite from Germany is France, which is swimming against the prevailing current of recovery. French manufacturing output is up 0.3% month to month during the two most recent months (June and July), and business sentiment is improving, although still decidedly negative. Thus, the recent deterioration in French PMI data is likely to be reversed amid the general euro-zone improvement.

The improvement is expected to continue, although the pace of recovery will be timid. Business balance sheets are poor in the currency union, which is militating against capital spending and M&A activity. Also, there continues to be structural constraints against spending on structures and infrastructure that will constrain construction activity and purchases of construction equipment. Thus, the stronger impetus for growth will come from foreign demand—Eastern Europe, Asia and, most prominently, the U.S. This reliance on foreign stimulus is a considerable risk, as the U.S. recovery is by no means self-sustaining as yet. Further, the euro is climbing against the U.S. dollar again, and will inhibit competitiveness in foreign markets.

Go here to read more, if you subscribe to Economy.com.