The seasonally adjusted Markit/BME Germany Purchasing Managers’ Index (PMI) recovered some of the ground lost after it dipped to an eight-month low in September. At 56.6 in October, up from 55.1 in the previous month, the PMI – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – was comfortably above the neutral 50.0 mark and higher than the series average (52.0). The robust improvement in the overall performance of the German manufacturing sector was mainly driven by stronger gains in new work.
October data signaled a further rise in new business levels, continuing the upward trend seen since July 2009. The rate of expansion accelerated markedly from the fourteen-month low posted in September, partly supported by a stronger contribution from new export orders. Manufacturers indicated that new export business increased at the sharpest rate for three months, although remained much less marked than the average for the first half of 2010.
Higher levels of new work resulted in an acceleration in output growth from the 11-month low posted in September. Production rose in all three market groups during October, with the fastest rate of expansion registered in the investment goods sector. Meanwhile, consumer goods producers reported only a modest improvement in output levels.
Further rises in output and new business contributed to a solid expansion of employment levels in October. Job creation has been recorded in each of the past seven months and the rate of workforce growth was broadly in line with that recorded in September. Employment growth was the sharpest in the investment goods sector, while consumer goods producers recorded the slowest rise during the latest survey period.
Anecdotal evidence indicated that rising staffing levels reflected ongoing efforts to meet stronger client demand. Moreover, a robust increase in backlogs of work, and the fastest depletion of finished goods stocks for eight months, suggested renewed capacity pressures in October.
Manufacturers signaled that supplier lead-times lengthened for the fifteenth month running in October. Survey respondents attributed the sharp deterioration in vendor performance to stronger global demand for raw materials, particularly from Asia. There were also widespread reports of stock shortages and a lack of operating capacity at suppliers. As a result, firms continued to raise their inventories of raw materials, extending the current period of growth to seven months. October data also pointed to a robust and accelerated rise in input buying among German manufacturers.
Strong demand for raw materials led to another steep rise in average purchasing costs, but the rate of inflation was still much lower than April’s recent peak. Meanwhile, factory gate charges in the manufacturing sector increased for the ninth consecutive month and at the fastest rate since June, reflecting ongoing efforts to pass on higher costs to clients.
Commenting on the final Markit/BME Germany Manufacturing PMI survey data, Tim Moore, economist at Markit and author of the report, said: “Manufacturing output increased at a stronger pace in October, led by a rebound in new order growth from the 14-month low seen in September. The headline PMI rose for the first time in three months, but the pace of recovery in the sector remains much slower than April’s peak. While the recovery may have stepped down a gear toward the latter part of 2010, manufacturing job creation remains relatively strong and continues to outshine the rest of the ‘big-four’ euro area economies.”
