The Eurozone manufacturing PMI (Purchasing Mangers' Index) registered its biggest jump in more than 2 1/2 years in December, rising to 52.7 from a reading of 51.6 in November.  The UK saw even stronger numbers for December as the PMI reading came in at a very robust 57.3.  In the UK, though, the reading was lower than November, which had reported 58.1.  Readings above 50 correspond to economic expansion.  The high readings in the UK have been seen only in one other time interval over the last decade, in 4Q 2010 and 1Q 2011.  The highlights summary from Markit for the Eurozone:

The eight countries reported are ranked Markit below.  France has been degrading and is ranked below Greece, which has been improving recently.

Markit releases a preliminary (flash) result Germany and France about a week before the final report.

Markit Chief Economist Chris Williamson said about the Eurozone report:

"A strengthening upturn in the manufacturing sector is helping the euro area recovery become firmly established. The latest numbers are consistent with production growing at a quarterly rate of approximately 1% at the end of the year. It's also encouraging to see prices rising slightly, suggesting firms are seeing some improvement in pricing
power.

"With producers reporting further growth of new orders, exports and backlogs of work, the stage is set for a good start to 2014, during which it seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy.

"France, however, remains a concern. While Germany, Italy and Spain are seeing the strongest output growth since early-2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses. This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers."

The highlight summary for the UK:

After leading the PMI results higher earlier in 2013 actual manufacturing production numbers have been declining in the second half of the year.  This may not be significant unless it continues for many months - short term volatility correlation is not significant between the two measurments.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply said of the latest results:

"UK manufacturing ended 2013 on a high and with all signs of powering ahead into 2014. The rate of production and new order growth remained well above the long-run survey average, rounding off the best overall quarterly performance for the PMI since Q1 2011. The sector's broad based expansion was underpinned by strong domestic demand and improved export orders, all of which are signs of an
underlying trend of continuing growth going into the New Year.

"Higher demand and new orders in December resulted in increased levels of employment in the manufacturing sector for the eighth consecutive month. Purchases of new materials also rose solidly reflecting the ongoing increases in production requirements. Concurrently this is putting a distinct pressure on suppliers and on delivery times.

"The only area of concern is the cost inflationary pressure which continued to build up during this final month, with input price inflation hitting a 28-month high."

The inflationary pressures are not expected to be troublesome in the near term but could keep a foothold in the UK longer run, according to Davis Tinsley, quoted by BBC News:

"With headline CPI inflation softening for a variety of reasons, this trend in manufacturing price pressures is not likely imminently to trouble the Bank of England.  But it does underline that inflation is not dead in the UK, and the economy is likely to sustain a materially higher inflation rate than its peers in 2014."

Rob Dobson, Senior Economist at survey compilers Markit made the following remarks about the latest UK reports:

"UK manufacturing's strong upsurge continued at the end of 2013, with rates of growth in production and new orders still among the highest in the 22-year PMI survey history. On its current track, the sector should achieve output growth of over 1% in the final quarter while filling around 10-15 thousand jobs, continuing its positive contributions to both the broader economic and labour market recoveries.

"The domestic market remains resurgent and is a major factor driving production and new order inflows higher. UK exporters are also finding pockets of strength, with sales of capital and intermediate goods rising solidly to destinations such as Brazil, China, Ireland, Russia and the USA.

"With the manufacturing sector still some 9% off its pre-crisis peak production, the question everyone wants answering is whether this upturn can develop into a self-sustaining recovery. The news is still good on this score, as growth is coming from a broad base that should help keep the rebound on track during the early stages of 2014.

"Output and new orders are rising across all manufacturing sub-sectors and also at SMEs and large-scale producers. The strong performance of intermediate goods manufacturers suggests that firms are refilling their warehouses, while robust growth at consumer and capital goods producers indicates that household and investment spending are also still playing a key role."

Following is the text of the press release from Markit for the Eurozone:

The recovery in the eurozone manufacturing sector accelerated further at the end of 2013. The seasonally adjusted Markit Eurozone Manufacturing PMI®  rose for the third month running to post 52.7 in December, up from 51.6 in November (and unchanged from the earlier flash estimate).

The headline PMI has now signalled expansion throughout the second half of the year. For the final quarter as a whole, the sector is recording its best performance in two-and-a-half years, consistent with a quarterly pace of output growth of around 0.6%.

The latest improvement in overall operating conditions was underpinned by solid and accelerated growth in the Netherlands, Germany, Ireland and Italy, while Austria continued to expand at a robust clip despite the rate of increase easing slightly since November. Meanwhile the Spanish PMI moved back into expansion territory.

There was even relatively positive news from Greece, where higher levels of output and new orders elevated its PMI to a 52-month high and close to the 50.0 stabilisation point. France moved in the opposite direction, however, with its PMI falling to a seven-month low and signalling contraction for the twenty-second successive month.

Eurozone manufacturers reported further solid gains in both new orders and production, with the rates of expansion in December the steepest in over two-and-a-half years. Moreover, average rates of growth for both demand and output during the final quarter were higher than in the previous quarter.

The latest increase in new order inflows was underpinned by a solid improvement in new export business. New export orders rose for the sixth month running, and at a pace close to November's two-and-a-half year peak. Among the nations covered, only France and Greece reported lower levels of incoming new export business.

With output, new orders and backlogs all rising, manufacturers held off from further job losses in December. The level of employment in the eurozone manufacturing sector was broadly unchanged over the month, with job creation seen in Germany, Italy and Ireland. Workforces declined at slower rates in Spain and Greece, but at faster paces in France and Austria.

A further by-product of higher demand and improving confidence at manufacturers was the strongest increase in purchasing activity since May 2011.

December saw average input prices rise for the fourth month running and to the greatest extent since October 2012. However, the rate of inflation remained subdued compared with the historical standards of the survey.

Part of the increase in input costs was passed on to clients, as selling prices also rose for the fourth straight month. Moreover, charge inflation hit a 21-month high. Output prices rose in Germany, Italy, Spain, the Netherlands and Ireland, and were broadly unchanged in France and Austria. Only Greece reported a decrease in output charges, although the rate of decline eased further to the weakest since September 2011.

Following is the text of the press release from Markit for the UK:

The UK manufacturing sector ended 2013 on a positive footing. December saw rates of expansion in production and new orders both remain among the highest in the 22-year survey history, leading to a pace of job creation close to November’s two-and-a-half year record. Companies benefited from strengthening domestic market conditions and a solid bounce in incoming new export orders.

The seasonally adjusted Markit/CIPS Purchasing Manager's Index® (PMI®) posted 57.3 in December, down slightly from November's 33-month high of 58.1, but still a level indicative of a robust improvement in overall operating conditions. Moreover, the average PMI reading for the final quarter as a whole (57.2) was the highest since Q1 2011.

 

Manufacturing output rose for the ninth successive month in December, underpinned by rising levels of incoming new work and efforts to clear backlogs of work. Meeting the needs of current and existing contracts also led to a further solid reduction in post-production inventories. Subsequently, the stocks of finished goods to new orders ratio posted one of its highest readings in the survey history to date (albeit below November's series record).

The level of new export business increased for the ninth consecutive month in December. However, the rate of growth eased to the weakest since September. UK manufacturers reported improved demand from Brazil, China, Ireland, Russia and the USA.

December data signalled an eighth successive monthly increase in manufacturing employment. The rate of jobs growth was the second-strongest in the past two-and-a-half years, down only slightly from that registered in November. Higher employment reflected the increases in production and new orders.

On the price front, average input costs and output charges both rose at faster rates in December. Purchase price inflation accelerated to a 28-month high, pushed up by the increased costs of commodities, energy, meat, paper, packaging, polymers and timber. There were also some reports that suppliers were raising their prices in response to increased raw material demand and shortages of certain inputs. Concurrently, average vendor lead times lengthened for the seventh month in a row.

Output charges rose at the fastest clip since September 2011. Where an increase in factory gate prices was recorded, this was linked to escalating raw material costs. There were also reports of charges being raised in response to improved demand.