Full Order Books: PMI Rises to 61.2

August 7, 2010 · Filed Under Economy

The German manufacturing recovery gathered momentum in July, as highlighted by a rise in the seasonally adjusted Markit/BME Germany Purchasing Managers’ Index (PMI) to 61.2, from 58.4 in the previous month. The index has now posted above the neutral 50.0 level for ten successive months. Moreover, the latest reading was the highest for three months and signalled the second-sharpest improvement in operating conditions since the series began in April 1996.

July data pointed to a sharp increase in German manufacturing production and incoming new business, with both rates of growth the most marked since April. Faster rises in output were recorded in all three market groups, but production growth in investment and intermediate goods continued to outpace consumer goods.

New business levels increased for the thirteenth consecutive month and the rate of expansion was much faster than in June. Anecdotal evidence suggested that improving economic conditions and, in some cases, restocking by clients had boosted demand in July.

Although new export orders continued to rise at a strong pace, the latest increase was the least marked for six months. Manufacturers cited a dip in global trade flows and fragile demand within the euro area. July data pointed to solid rises in new work from abroad in the intermediate and investment goods sectors, but a reduction in new exports received by the consumer goods sector.

Input cost inflation continued to ease in July, with the latest rise in purchasing prices the slowest since February. Where an increase in cost burdens was reported, this was generally attributed to stock shortages at suppliers. There were also some reports that the weak euro/dollar exchange rate had raised the cost of imported raw materials. Meanwhile, factory gate charges (53.0) increased for the sixth month running, but the rate of inflation eased since June.

German manufacturers indicated the second-sharpest deterioration in supplier performance in over fourteen years of data collection. This reflected stock shortages and capacity constraints at vendors. Consequently, firms sought to build up their inventories of raw materials in July, extending the current period of rising input stocks to four months. In contrast, finished goods inventories fell slightly in July, which survey respondents mostly linked to stronger-than-expected sales at their plants.

The Markit/BME Purchasing Managers’ Index (PMI) is an early monthly indicator to predict the economic development in Germany. It is produced by Markit Economics, Henley-on-Thames, and is based on original survey data collected from a panel of over 500 purchasing managers and executives of the German manufacturing sector (selected by industry, size and region to represent the German economy). The German Purchasing Managers’ Index PMI is modeled towards the US Purchasing Managers’ Index (PMI).