New Order Growth
September data indicated that the manufacturing rebound in Germany remained on track, although the latest rise in output was a little more muted than in August. The latest survey also showed that new order growth accelerated to its fastest for a year-and-a-half and backlogs of work stabilised after fourteen consecutive months of decline. The recovery is nonetheless in its early stages, as cost cutting, job cuts and tight management of working capital remained to the fore.
At 49.6 in September, up from 49.2 in August, the headline seasonally adjusted Markit/BME Purchasing Managers’ Index (PMI) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – was the highest for thirteen months. The rise in the headline index was driven by stronger new order growth and a fractionally slower rate of job shedding. Although still sharp, workforce numbers fell at the slowest rate for twelve months in September.
German manufacturers indicated an expansion of production for the third successive month in September. Output levels increased over the month in all three market groups monitored, with the fastest rise in the consumer goods sector. However, measured overall, manufacturing output growth eased from August’s 14-month high. Production levels were supported by a further solid expansion of incoming new orders in September. The latest rise was the strongest since March 2008, highlighting a marked rebound in demand following the sharp falls seen earlier in the year. Anecdotal evidence suggested that successful promotional activities and improvements in underlying market conditions had led to increased volumes of new work. A number of firms also noted that price discounting supported sales in September.
The latest rise in incoming new work did little to remove caution on the purchasing front, with rates of decline in inventories still close to those seen at the height of the recession. Sharp reductions in inventories reflected a focus on improving cash flow, cutting costs and adjusting to the slump in demand in the first half of 2009. Stock reduction policies also contributed to a moderate drop in purchasing activity in September.
Suppliers’ delivery times lengthened for a second month running and the latest deterioration of vendor performance was the most marked since July 2008. This was widely attributed to shorter working hours and reduced capacity at vendors.
Input costs fell at the slowest rate in the current eleven-month period of decline. However, the rate of factory gate price discounting was little-changed in September, reflecting pressure on manufacturers to stimulate client demand through lower charges.
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 manufacturing index PMI is modeled towards the US Purchasing Managers’ Index (PMI).
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