The final Markit/BME Purchasing Managers’ Index (PMI) signaled that the overall performance of the German manufacturing sector continued to improve at the start of 2010, driven by faster rates of output and new order growth. At 53.7, up from 52.7 in December, the headline PMI – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – was above the neutral 50.0 mark for the fourth consecutive month. The latest reading was also the highest since March 2008 and indicated a solid improvement in business conditions.
Production levels in the manufacturing sector increased at an accelerated pace in January, with the latest rise the fastest since September 2007. Growth was centered on the intermediate and investment goods sectors, while consumer goods producers signaled that output was broadly unchanged.
Strong new order growth was the main factor underpinning the rebound in production levels. The latest improvement in new business volumes was the most marked for three years, which survey respondents linked to the launch of new products and improved confidence among clients. As was the case for output growth, the expansion of new work was concentrated in the intermediate and investment goods sectors.
Increased new export orders supported the marked rise in overall workloads in January. Data indicated a solid increase in new business from abroad, with the rate of growth little-changed since the previous month. A number of companies attributed gains in new work to rising demand from China. Some also commented that restocking of inventories at clients had a positive influence on export sales.
Backlogs of work rose again in the German manufacturing sector, extending the current period of growth to four months. The latest increase was the most marked since June 2007. Higher levels of unfinished work, alongside further gains in new business, resulted in a continued rebound in purchasing activity. However, delivery times from vendors lengthened for the sixth month running in January, largely reflecting shorter working hours and reduced stocks at suppliers. Increased input buying contributed to slower rates of inventory reduction. January data indicated weaker falls in both finished goods and pre-production stocks.
Job shedding persisted in the latest survey period, continuing the trend seen since October 2008. The decline in employment was sharper than in the previous month, which firms mostly attributed to ongoing staff restructuring and efforts to cut costs.
January data signaled a rise in average input prices for the second month running. The rate of cost inflation was also the sharpest since September 2008, which firms linked to higher prices for energy, metals and chemicals. Nonetheless, manufacturers reduced their output charges in January as strong competition resulted in price discounting and further downward pressure on operating margins in the sector.
Commenting on the final Markit/BME Germany Manufacturing PMI survey data, Tim Moore, economist at Markit, said: “January data showed impressive gains in production and new orders across the manufacturing sector, which widened the performance gap between Germany and Southern Europe. Although companies are riding a wave of improved global demand, they still appear cautious about the economic outlook, resulting in another round of job cuts at the start of 2010. Moreover, manufacturers remain in cost-cutting mode, as a combination of lower charges and higher input prices placed further pressure on margins.”
