Purchasing Managers’ Index Three Points Down

September 15, 2010 · Filed Under Economy, Markets

Output and new order growth in the German manufacturing sector eased markedly in August. As a result, the purchasing volume dropped to 58.2, from 61.2 in July.

Meanwhile, higher capacity utilisation led to a robust expansion of input buying in August. That said, the pace of growth was the slowest since January, largely reflecting a moderation in new order gains. Companies again reported delays in the receipt of raw materials from suppliers. Vendor performance deteriorated for the thirteenth month running and at a sharp pace. Some manufacturers sought to guard against longer supplier lead times by building safety stocks in August, which in turn led to another modest rise in pre-production inventories in the manufacturing sector.

According to BME (German Federal Association Materials Management, Purchasing and Logistics), the upturn in August was less dynamic, following the near-record highs recorded in the previous month. As a result, the seasonally adjusted Markit/BME Germany Purchasing Managers’ Index (PMI) – dropped to 58.2. The latest reading was still much higher than the long-run series average (51.9). This slowdown is due to lower growth rates in output and new order.

Backlogs of work continued to accumulate in the German manufacturing sector, but slower new order growth resulted in the least marked rise in unfinished business for seven months. Companies that reported an increase in backlogs generally attributed this to capacity pressures at their plants. Some firms also pointed to delays in the receipt of raw materials from suppliers. A number of manufacturers sought to alleviate backlog accumulation at their plants by despatching sales from existing inventories. Consequently, post-production stocks declined for the third successive month and at the fastest pace since February.

Higher capacity utilisation contributed to a solid increase in employment levels in the manufacturing sector. Although the rate of job creation eased slightly in August, it was the second-fastest since May 2008.

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).