German Private Sector Output Nearly Stable in September

September 23, 2012 /

The German output indicator has signalled a close to stagnation of overall private sector business activity this month, the highest since April.

The seasonally adjusted Markit Flash Germany Composite Output Index registered 49.7 in September, up from 47.0 during August. September data indicated that a modest expansion of service sector activity broadly offset a continued reduction in manufacturing production.

The increase in services output was the first since July. Meanwhile, the decline in manufacturing production slowed for the second month running in September and was the least marked since the current period of contraction started in April.

Tim Moore, Senior Economist at Markit said: “Germany managed to shake off the summertime blues in September, with renewed services growth helping to stabilise private sector output as a whole.”

Moore said manufacturing contributed to the “slightly less gloomy picture” by holding down contraction of production compared to August.

“However, the halt to the private sector downturn seems to have a fragile veneer, given the reliance on
pipeline projects over new business to stabilise output,” Moore added.

“A lack of incoming new work, combined with a sharp drop in year-ahead expectations for activity, meant that service providers cut back on staffing levels at the most marked pace since May 2009,’ he said.

September data suggested that the near-stagnation in business activity levels was achieved in part by the completion of work-in-hand. Backlogs of work declined for the fifteenth successive month and the latest reduction was the fastest since November 2011. Service providers indicated a particularly steep drop in outstanding business in September, with the rate of contraction the sharpest for just over three years.

Meanwhile, new business intakes across the German private sector declined at a slower rate during September. Although the pace of contraction remained marked, it was nonetheless the slowest for three months. Both manufacturers and service providers indicated slower falls in new work since August, and the rates of reduction were broadly similar.

Latest data also showed that new export orders in the manufacturing sector dropped at a much less marked pace than the 40-month record registered during August.

A stabilisation of business activity and slower falls in new work did not prevent a return to job cuts across the German private sector during September. Although the decline in employment was only marginal, it was the most marked since January 2010.

Lower staffing levels reflected workforce reduction in the service economy, with the latest data pointing to the fastest rate of contraction since May 2009. Service providers also indicated a return to pessimistic sentiment about the year-ahead business outlook.

September data signalled the most downbeat assessment of future business activity since October 2011.

Input cost inflation across the German private sector continued to accelerate from the 32-month low posted in July. September data indicated a robust increase in average cost burdens that was the steepest since April, which firms widely linked to higher fuel and other oil-related prices.

The latest rise in service sector cost burdens extended the current period of inflation to three years, while the increase in manufacturing input prices was the first since May. Strong competition for new work and fragile underlying economic conditions nonetheless meant that output charges in the private sector dropped for the third month running during September, albeit again only marginally.

The overall decrease in average tariffs was driven by the most marked fall in service sector charges since August 2010.

 

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