PMI Reflects Robust Economic Growth
The current debt crisis, public savings packages and the continued fall of the euro have not slowed down the German economy. Robust growth in June is reflected by the seasonally adjusted Markit/BME Germany Purchasing Managers’ Index (PMI) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – which was unchanged at 58.4 in June.
“We are worried about the sharp increase in purchasing prices despite the positive development. Prices for steel and industrial metals play a decisive role,” commented CEO Dr. Holger Hildebrandt, Association Materials Management, Purchasing and Logistics (AMMPL) on 2 July. “The global recovery and the weakening of the euro have given a strong impulse to Germany’s industry. The development of the investment goods sector is particularly encouraging,” said Dr. Gertrud R. Traud, Chief Economist at the Landesbank Hessen-Thüringen (Helaba), on 2 July, when assessing the latest PMI figures. So investments were boosted and this was also good news for the labour market. She also pointed to the high level of the PMI, adding that a further increase was unlikely in her view. The economy would probably slow down slightly in the course of the year.
Higher levels of production were recorded in all three market groups monitored by the survey, with growth strongest in the intermediate and investment goods sectors. Consumer goods producers continued to record a much slower expansion of output than the manufacturing sector as a whole. Measured overall, the latest rise in production at 60.3 was slightly stronger than in May (59.2), but still much less marked than the survey-record expansion seen in April (67.0).
The moderation in output growth since the survey-record high registered in April has corresponded with an ongoing easing in new order gains. June data signalled that new order growth slowed for the third month running and was the weakest since December 2009. New export order growth also eased markedly and was the slowest for five months, reflecting weaker rises in all three market groups.
Global players as well as small and medium-sized companies recorded a strong rise in new order, although new orders were below the levels reached in the first three months of this year. The corresponding index stood at 58.1 (59.6), its lowest level since December 2009 (55.9). The demand for industrial goods “made in Germany” has also decreased noticeably.
Increased workloads led to a sharp rise in input buying, with the rate of expansion broadly unchanged since the previous month. Survey respondents also suggested that higher levels of purchasing reflected the need to guard against supplier delays. June data signalled the second-sharpest deterioration in vendor performance since the survey began in April 1996, which was widely linked to bottlenecks and shortages of stock at suppliers. Inventories data highlighted a further solid increase in stocks of inputs at manufacturing companies, which respondents attributed to rising production levels and the deliberate build up of safety stocks. Meanwhile, inventories of finished goods declined in June.
The sharp increase in purchasing prices (65.2 in June after 71.6 in May) was also due to the rise in steel prices. However, this price increase was lower than in the last three months. Selling prices could be raised significantly, with 53.1 in May and 55.7 in June, being a consequence of continued high demand and having a positive impact on operating margins.
Employment increased for the third month running in June and at the fastest pace for two years. Anecdotal evidence attributed this to higher capacity utilisation and the need to boost production. Stronger demand also contributed to higher levels of unfinished work in June, extending the current period of backlog accumulation to nine months.
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).
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