Sharpest Falls in German Output and New Orders Since April 2009

August 03, 2012 /

The performance of the German manufacturing sector took another turn for the worse in July, with output and new orders both declining at the sharpest rates since April 2009. This led to a further drop in the seasonally adjusted final Markit/BME Germany Purchasing Managers’ Index (PMI) from 45.0 to 43.0 in July, its lowest level since June 2009.

Reduced production volumes have now been recorded in each of the past four months. The steep fall in output levels during July was driven by a marked decline in the investment goods sector. Anecdotal evidence widely attributed lower production to a lack of incoming new work to replace completed projects.

July data highlighted a thirteenth successive monthly contraction of incoming new business in the German manufacturing sector. This is the longest continuous period of falling new orders since the survey began in April 1996. Survey respondents frequently commented on an unwillingness among clients to commit to new spending, largely in response to the uncertain global economic outlook.

New export work continued to decline at a steeper pace than total new business receipts in July. Manufacturers noted shrinking sales in Western Europe, alongside softer demand in Asia and the US. The overall decline in new export work was the steepest since May 2009.

A lack of new work meant that manufacturers again focused resources on the completion of outstanding projects in July. As a result, backlogs of work fell at the fastest rate for just over three years. Lower underlying demand and heightened concerns about the outlook for production requirements contributed to a fourth successive monthly reduction in employment levels.

The rate of job shedding accelerated in July to its most marked for two-and-ahalf years. In line with the trend for output and new business, decreased workforce numbers were recorded in all three market groups monitored by the survey.

Manufacturers in Germany reduced their input purchasing and raw material inventory levels in July.

The latest drop in input buying was the fastest since June 2009, which in turn contributed to a robust
improvement in average delivery times from suppliers. Pre-production inventories fell for the eleventh successive month. However, stocks of finished goods rose for the first time since November 2011, linked to a steeper-than-expected drop in sales.

Average cost burdens dropped for the second consecutive month in July, reflecting lower prices for a range of raw materials on world markets. The latest overall decline was the steepest since August 2009. Output charges meanwhile only marginally, albeit to the greatest extent for two-and-a-half years.

Tim Moore, senior economist at Markit and author of the report said: “The German manufacturing PMI number slipped to bronze position in the ranking of the ‘big four’ eurozone economies during July, its lowest position for three years and indicative of a sharp deterioration in business conditions over the month.

“Manufacturers linked the latest setback to shrinking export sales and a general shortage of new work to replace completed projects. Output dropped at the steepest pace for over three years and job shedding was the most marked since the start of 2010.

“A further sign of heightened concerns about the outlook was the rapid drop in input purchases, with the
pace of decline the steepest ever recorded by the survey outside of the 2008/09 recession period.”


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