Eurozone manufacturing activity showed the most substantial growth ever in June. So says the British market researcher Markit. However, the industry continues to struggle with shortages in the supply chain of raw materials and parts.
There are also delays in the supply of materials due to a lack of sea containers and delays at seaports.
According to Markit, the purchasing managers’ index that measures activity rose to its highest level since measurements began nearly 24 years ago. This marked a new record level for the fourth month in a row. The industry fully benefits from the strong economic recovery from the corona crisis and the easing of the corona measures, which means that the demand for goods is increasing sharply. This mainly concerns investment goods such as factory machines and means of transport such as trucks. Exports are also very strong.
But manufacturers are struggling to meet that strong demand. As a result, backlogs in deliveries are increasing. On top of that, there are problems with the supply of materials, which means that companies draw even more from existing stocks. These shortages drive up purchase prices for producers because they are willing to pay more to get sufficient supplies.
Due to the sharp increase in production and order growth, manufacturers are hiring more staff. According to Markit, Eurozone manufacturing jobs are growing at the fastest ever recorded pace. Things are going fast, especially in the Netherlands and Austria, says the market researcher.
Incidentally, Markit expects that the problems in the supply will decrease in the coming period. The agency believes that disruptions to shipping will ease as the catching-up effect of the crisis fades. Furthermore, many companies have recently built up safety stocks, disrupting supply and demand.
This effect will also diminish. Finally, by hiring additional staff and investing in machinery, companies can ramp up production in struggling sectors to meet demand. This will help reduce shortages and long delivery times and reduce the sharp rise in prices.