CBS reports that manufacturers are less positive in August. Especially when it comes to their order book and expected activity in the next three months. Their assessment of stocks of finished goods also deteriorated. In contrast to buyers in Dutch manufacturing. On the contrary, they are extremely positive: the purchasing managers' index (NEVI PMI) even rose to an almost historic value of 59.7 in August. Where is this difference?
How is it possible that our industry has been growing for almost 5 years?
The cause lies, on the one hand, in the competitiveness and innovativeness of Dutch manufacturing companies. But largely also in low raw material prices. In an improving economy, demand for raw materials increases. Over time, rising demand translates into rising raw material prices. That is not the case now. On the contrary: prices of oil, plastics and steel remain the same or even fall. This allows sales price increases to be limited, which results in demand for finished products not being discouraged. However, it is important to secure the supply of raw materials and components, especially now that shortages are occurring here and there and suppliers are struggling to deliver ordered products. Important to keep an eye on this!
Also of interest is the development of the euro against the dollar, which will have escaped few: a stronger euro affects exports, which are often paid in dollars. Stock markets react accordingly. Despite the positive economic sentiment in the Eurozone (Eurozone sentiment index registered a value of 111.9 in August; at the level before the credit crunch), most stock markets have been showing red numbers for the last week. Is it really that bad? Are Dutch manufacturing exports really suffering from this already? Are order books falling? The next few months will tell.
NEVI Purchasing Managers' Index (NEVI PMI) at 59.7
You wouldn't tell by the latest figures from the NEVI Purchasing Managers' Index (NEVI PMI). Quite the contrary! This index registered a reading of 59.7 for August. Unprecedentedly high: we have to go back almost 7 years for such a value (an NEVI PMI > 50 indicates growth in business activity; a PMI < 50 indicates decline). The manufacturing index came out at 60.0. Causes: sharply higher export volumes but also strong domestic demand (58.6 and 60.0 respectively).
The Dutch manufacturing industry appears to be extraordinarily competitive and price-smart given the limited sales price inflation. This index registered 53.5. Put next to it the purchase price inflation index which registered 59.5 and it appears that not all cost increases are being passed on to customers. This seems to be one of the reasons for the unprecedented economic growth period: for almost 5 years now.
How do these figures compare with other countries?
PMI Germany registered 59.4, PMI USA dropped from 53.3 to 52.5, and PMI China came out at 51.7. And the PMI for the Eurozone? At 57.4 in August, that was the highest level for the Eurozone PMI in six years. Robust demand and strong employment drove stable growth. Growth in the Eurozone was driven by Germany, Austria and the Netherlands. In particular, the strong export growth in Germany is of course also good news for Dutch exports.
The conclusion is that the NL manufacturing industry still has the wind in its sails. And so is employment! Biggest concern in the short term is: can we deliver on time because suppliers cannot handle the work.
This blog was written by Erik van Assen. View his profile here.
(Courtesy of Professor Prof Dr Arjan van Weele).
