February data indicated that the recovery in the German manufacturing sector gained momentum, with output and new orders rising at the fastest rates for over three years, while employment numbers fell at a much slower pace. At 57.2, up sharply from 53.7 in January, the final 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 since June 2007 and above the neutral 50.0 mark for the fifth month in succession.
Output levels increased in all three market groups monitored by the survey and growth remained strongest in the investment goods sector. Overall levels of manufacturing production rose at the fastest rate since January 2007, driven by improving global economic conditions and a corresponding expansion of incoming new orders.
Manufacturers in Germany indicated the sharpest rise in new work since April 2006. Growth of new orders has now been recorded for eight consecutive months, with the three market groups recording similarly sharp gains during the latest survey period.
Survey respondents suggested that increased levels of new business were supported by firmer underlying demand, particularly from outside the euro area. Some companies also commented on the rebuilding of stocks by clients. February data pointed to the fastest rise in new export orders for three years, which companies mostly attributed to higher demand from emerging markets.
Increased production and new order volumes contributed to a sharp rise in input buying during February, extending the current period of expansion to five months. This led to pressure on suppliers’ capacity, with delivery times lengthening at the fastest rate since December 2006. Manufacturers noted that longer lead-times reflected a combination of low capacity and shorter working hours at suppliers, alongside a marked rebound in demand for inputs. February data also indicated that stocks of purchases declined further, partly in response to delays in the receipt of raw materials from vendors.
Meanwhile, employment levels in the German manufacturing sector fell at the slowest rate in the current seventeen-month period of decline. Anecdotal evidence suggested that rising workloads had contributed to slower job shedding in February. Where a drop in workforce numbers was reported, firms mostly commented on ongoing staff restructuring and the need to reduce costs.
Average cost burdens increased for the third month running and at the fastest pace since September 2008. Reports from survey respondents linked the sharp rise in input prices to higher costs for raw materials, including chemicals, metals and plastics. However, pricing power remained weak in the manufacturing sector, with average output charges rising only marginally in February. Companies generally commented on strong competitive pressures and the need to stimulate demand.
Commenting on the final Markit/BME Germany Manufacturing PMI survey data, Tim Moore, economist at Markit, said: “Germany’s manufacturing sector registered another strong rise in output levels, with growth in February the fastest since the start of 2007. A sharp increase in new orders supported the latest upturn and stimulated a jump in input purchasing. This suggests firms are beginning to buy into the global recovery story and are less wary about inventory levels. Higher demand for raw materials placed pressures on costs and supply chains in February, the latter no doubt exacerbated by bad weather conditions. However, prices at the factory gate rose only marginally, highlighting that firms are absorbing cost rises as demand levels are not yet high enough to prevent margin squeeze in the sector.”
