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Factory Activity In Spain, Italy Gathers Pace As New Orders Rise


Business conditions in Spanish and Italian factory sectors improved in August as a solid increase in incoming new orders, particularly from the export markets, helped manufacturers to shrug off their earlier weakness, largely caused by continued recession, two separate surveys revealed on Monday.

Meanwhile, the Eurozone manufacturing sector expanded at the fastest pace in 26 months in August with all euro members showing improvement in factory activity, except France.

The Spanish manufacturing sector returned to growth for the first time since April 2011, helped by a sharp increase in new export orders, a survey by Markit Economics showed.

The purchasing managers' index, an indicator of the health of the industry, rose to 51.1 in August from 49.8 in the previous month. A reading above 50 indicates expansion of the sector.

Production at Spanish firms returned to growth in August, ending a 27-month sequence of decline.

This was led by a robust increase in new business that rose for the third successive month and at the strongest pace since February 2011. New export orders increased sharply during the month.

"Firms appear still to doubt the sustainability of the current improvements, however, opting to raise output only modestly and often using existing stocks to meet new order requirements," Andrew Harker, senior economist at Markit said.

The Italian manufacturing sector expanded at the fastest pace in 27 months in August, a survey by Markit Economics and ADACI showed.

The seasonally adjusted Markit/ADACI manufacturing purchasing managers' index climbed to a 27-month high of 51.3 in August from 50.4 in July.

Both production and new order growth at Italian manufacturing firms reached its highest level since April 2011. The improvement in the latter largely reflected higher new export orders, which rose at the fastest rate since April 2011.

"Firms reported being able to keep on top of higher order requirements, and further reduced their backlogs of work," said Phil Smith, an economist at Markit.

"That said, the rate of decline in outstanding business was the slowest in over two years, pointing to signs of growing pressure on capacity."

Employment remained a weak point in August for both economies. Spain reported the sharpest job reduction in four months in August. In Italy, the rate of job shedding was slightly faster than one month earlier, although only moderate.

Prices pressures remained contained during the month. While both input and output costs declined in Spain, there was a only marginal increase in prices in Italy.

Recent government data has confirmed that recession has eased in both Italy and Spain in the second quarter of 2012.

Italy's gross domestic product fell 0.2 percent quarter-on-quarter in the second quarter, after a 0.6 percent contraction in the first quarter. Meanwhile, Spain's GDP contracted 0.1 percent quarter-on-quarter following a 0.4 percent decline in the preceding three months.

The purchasing managers' index for Eurozone manufacturing rose to 51.4 in August from 50.3 in July. The flash reading was 51.3. The index has now increased for a fourth successive month to reach its highest level since June 2011.

Growth rates for production, new orders and new export business all accelerated to the fastest since May 2011, Markit said. However, the pace of reduction in staff level was slightly faster than in July, mainly due to steeper rates of decline in Germany, Italy and Spain. Only Ireland reported an increase in staffing levels.

German manufacturing sector expanded for the second successive month and signaled the strongest overall performance since July 2011. In contrast, the French factory activity shrunk for the eighteenth consecutive month amid sluggish demand.

by RTTNews Staff Writer

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