Business conditions in the German manufacturing sector improved sharply in March, with rising levels of global demand contributing to substantial output and new order growth. The final Markit/BME Germany Purchasing Managers’ Index (PMI) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 60.2, up from 57.2 in February and the highest since April 2000. March’s final reading was also above the earlier flash figure (59.6). Market group data highlighted that overall operating conditions continued to improve at the strongest rate in the investment goods sector.
March data pointed to the sharpest rise in German manufacturing production in the 14-year survey history. Output growth has accelerated in each month of 2010 so far, driven by a sustained surge in incoming new business. Some firms also noted that reduced caution over warehouse inventories had supported production levels at their plants. While stocks of finished goods and inventories of purchases both fell modestly in March, the rates of reduction were much slower than those seen throughout 2009.
Overall new business received by manufacturers in Germany increased at a survey-record pace in March, extending the current period of expansion to nine months. Anecdotal evidence from survey respondents attributed the latest sharp gains in new work to improved economic conditions and restocking by clients. There were also widespread reports that new business growth was driven by a sharp acceleration in demand from abroad.
The latest improvement in new export volumes was also the fastest since the survey began in April 1996. Growth of new export orders largely reflected higher levels of global trade and support from a more competitive euro/dollar exchange rate. Respondents cited particularly strong rises in demand from clients in Asia and the United States.
The ongoing rebound in manufacturing business conditions stimulated a survey-record expansion of input buying in March. Companies noted that purchasing activity increased sharply in response to higher output requirements and the need to replenish stocks of raw materials. However, average lead times from vendors lengthened for the eighth consecutive month in March and at the steepest rate since December 2006. Anecdotal evidence suggested that a delayed response by suppliers to higher demand contributed to stock shortages and delays in the receipt of raw materials from vendors.
Supply chain pressures and rising global demand for raw materials resulted in a further sharp increase in average input prices in March. Moreover, the rate of cost inflation accelerated to its strongest since August 2008 and was well above the long-run series average. However, manufacturers indicated only a modest rise in factory gate prices, with respondents attributing weak pricing power to intense competition for new work.
Commenting on the final Markit/BME Germany Manufacturing PMI survey data, Tim Moore, economist at Markit, said: “Germany continued to lead the recovery in euro area manufacturing, with production boosted by the fastest expansion of new exports in the 14-year survey history. German exporters rode a wave of growing global demand in March, with the investment goods sector recording a particularly strong performance. A near stabilization of employment numbers in March highlighted improved confidence in the business outlook amid a sustained acceleration of new order growth in the first quarter.”