Input Costs Rising in December 2009

January 11, 2010 · Filed Under Countries, Markets

Output levels in the German manufacturing sector continued to rise at a robust rate in December, extending the current period of expansion to six months. New order volumes also increased, albeit at a slower rate, leading to a further accumulation of unfinished work. An ongoing recovery in client demand resulted in slower job shedding at the end of 2009, with the latest drop in workforce numbers the weakest for fourteen months. However, margins were squeezed in December as price discounting continued, while input costs rose for the first time since October 2008.

The headline seasonally adjusted Markit/BME Purchasing Managers’ Index – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – registered 52.7 in December, up from 52.4 in November, to indicate the strongest overall improvement in operating conditions since May 2008. The rise in the headline PMI largely reflected slower rates of job shedding and inventory reduction in December.

Output growth remained robust and eased only fractionally from the twenty-six month high recorded in November. Latest data suggested that the strongest rises in production were in the consumer and investment goods sectors. Anecdotal evidence suggested that improvements in global economic conditions and a corresponding rise in client demand were the main factors leading to increased output levels in December.

Volumes of new work received by manufacturers in Germany improved for the sixth consecutive month in December. Latest data indicated that the rate of expansion was robust, but eased to the least marked since September. Growth of new export business also moderated in December. Where an increase in demand from abroad was recorded, survey respondents generally commented on higher levels of new work received from Western Europe and emerging markets (particularly in Asia). Rising levels of new work led to another solid increase in outstanding business in December, with the latest accumulation of backlogs the most marked since August 2007.

Increased workloads helped slow the rate of job shedding in the manufacturing sector. Data pointed to the weakest fall in employment levels since October 2008. Companies that reduced their staffing levels mostly pointed to ongoing restructuring in response to relatively low capacity utilisation at their plants.

Purchasing activity rose for the third month running in December, which some firms attributed to improved demand, alongside low stocks of inputs and concerns over longer delivery times from suppliers. Meanwhile, average input costs increased for the first time since October 2008. Cost inflation was nonetheless relatively modest and mostly linked to higher oil-related prices. Manufacturers continued to lower their output charges in December, but the rate of decline was the slowest for twelve months as higher costs resulted in less scope for price discounting.

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).