MADRID, Oct 1 (Reuters) - Spanish manufacturing conditions deteriorated in September, with output contracting more sharply than the month before as demand fell, the Markit Purchasing Managers' Index (PMI) showed on Thursday.
The manufacturing PMI fell to 45.8 from 47.2 in August, the second straight month of deterioration following a brief period of improvement and taking the index further below 50, the level dividing contraction from expansion.
"The latest Spanish manufacturing PMI data make sorry reading as the sector took a turn for the worse," said Andrew Harker, economist at Markit.
Employment fell sharply in September, with the rate of job loss hitting its highest in three months. New orders, stocks of goods and output prices all fell.
"With firms unable to pass on rising raw material costs to clients due to a lack of demand, manufacturers' profit margins are likely to come under increased pressure in the coming months. The labour market shows little sign of recovery as firms continue to cut jobs at a sharp pace," Harker said.
New orders, which declined to 48.7 from 51.3 in August, have fallen in 18 of the past 20 months, although the latest contraction was gentler than the sharp drops seen around the turn of the year.
The government expects Spain's economy to contract by 3.6 percent this year and for gross domestic product to fall more slowly in 2010. The country, which for long depended for growth on a construction boom and a highly indebted private sector, has only been protected by further decline by government spending widely expected to push the public sector deficit to around 10 percent of GDP this year.
Apart from the drag of heavily-indebted consumers struggling to deleverage, Spanish companies must also cope with a relatively inflexible labour market and a cost base inflated by years of higher inflation than the euro zone average.
(Reporting by Jason Webb; Editing by Victoria Main)