The Eurozone composite PMI, which includes manufacturing and services related output, fell to 48.7 in March, from 49.3 in February.  This is the largest drop in the index in the last two years.  Once more, economists are expecting Eurozone output to decline an overall .2 percent this quarter, compared to a .3 percent decline in the fourth quarter of last year, which is the technical indicator of recession. Unemployment among the Eurozone 17 nations now averages above 10.5 percent. Many economic forecasters indicate that consumer spending in the region is unlikely to improve anytime soon.

Of more concern, the latest numbers indicated further weakness in France and Germany, the two principle engines of manufacturing growth.  The composite PMI for France dropped to 49.0 in March, from 50.2 the previous month.  Germany’s composite PMI fell to 51.4 in March from 53.2. The implications of these latest economic indicators is that the region has more than likely entered a recessionary phase and the real question is how long and severe it will ultimately end up to be.

For Eurozone manufacturers the implications are both a contraction in spending with continued concentration in other geographic regions to support growth and profitability needs.

As an example, French based food producer Danone recently reported that more than 60 percent of current sales growth and 75 percent of operating profit growth came from 6 countries, Brazil, China, Indonesia, Mexico and Russia). Similarly, other Eurozone based manufacturers are concentrating on emerging market regions and the U.S. for growth and profitability needs.  These trends make the issue of the value of the Euro and the overall long-term stability of Eurozone ever more important. Similarly, European firms such as Nestle, Siemens and Unilever have concentrated growth and output strategies outside the Eurozone.

Meanwhile, the manufacturing-led resurgence in the U.S. continues. The ISM PMI for March increased one full percentage point to a reading of 53.4 in March.  While the employment indices increased, new orders declined slightly, indicating some caution for sustained momentum.

Supply chain planning teams need to continue to have a keen eye on individual regional economic indices to spot sudden trends as 2012, as was 2011, will turn out to be a challenging year for predicting output needs by region.

Bob Ferrari