Slower Decline in German Manufacturing Output
The final seasonally adjusted final Markit/BME Germany Purchasing Managers’ Index (PMI) posted 44.7 in August, up from a 37-month low of 43.0 during July. Although the latest reading was still below the neutral value, thereby pointing to an overall deterioration in business conditions, it was the first month-on-month rise in the PMI since January.
The headline PMI reading is a composite index designed to give a snapshot of operating conditions in the manufacturing economy, with the rise since July mainly reflecting slower reductions in output, new business and employment.
August data pointed to a fall in production levels for the fifth month running, and the rate of expansion
remained relatively steep in the latest survey period.
Intermediate goods production dropped particularly sharply in August, while only the consumer goods sector recorded an expansion of output.
Companies that reported a decrease in production levels in August generally linked this to lower volumes of new business and fewer outstanding workloads at their plants. August data highlighted a sharp fall in new order levels, although the rate of contraction eased slightly from July’s low.
The slower pace of decline largely reflected a less marked drop in domestic demand, as new export work fell at the steepest rate since April 2009. Survey respondents commented on a general slowdown in global demand and particular weakness in new business inflows from Southern Europe.
Investment and intermediate goods producers recorded the steepest reductions in new export orders. Meanwhile, August data signalled a rapid fall in outstanding business at manufacturing firms, which extended the current period of contraction to 12 months.
Lower workloads once again contributed to cautious hiring trends in the manufacturing sector. Job losses were recorded for the fifth month running, although the pace of decline in staffing levels was much less marked than in July.
Ongoing reductions in new work and production requirements resulted in efforts to streamline inventories during August. Latest data highlighted lower stocks of finished goods and another marked fall in pre-production inventories. Some firms commented that quicker supplier delivery times had allowed greater flexibility in their input buying and stock holdings.
Purchasing activity dropped rapidly in August, and at the fastest pace since June 2009. Meanwhile, supplier lead-times shortened for the sixth consecutive month.
Manufacturers pointed to a further easing in inflationary pressures during August. Output charges fell at the most marked pace since January 2010. However, input costs dropped at a much less marked rate than that seen during July, with some firms citing higher steel and oil-related prices in August.
Tim Moore, senior economist at Markit and author of the report said: “August’s survey suggests that the downturn in German manufacturing output eased since July, but the sector remains on course for the weakest quarterly performance for just over three years. The new orders figures are especially disappointing, with export work dropping at the fastest pace since April 2009 amid an ongoing deterioration in global demand.
“Consumer goods producers showed some signs of resilience in August amid a positive contribution from domestic spending, but the intermediate and investment goods sectors again fared badly and their overall
performance failed to improve on July’s lows.”