Delays in Delivery for Key Raw Materials

The seasonally adjusted RBS/BME Purchasing Managers’ Index (PMI) continued to signal a robust overall expansion of the German manufacturing economy in April. After falling for three consecutive months at the start of 2007, the PMI rose slightly to 57.0 in April, from 56.9 in March. This marks the twentieth consecutive month in which the index has remained above the 50.0 no-change value.

Longer average lead-times for key raw materials (particularly steel) encouraged firms to build buffer stocks and replenish pre-production inventories at their plants. Raw material inventories increased for the first time in 2007, driven by a further robust expansion of input buying. In contrast, stocks of finished goods declined for a twenty-sixth consecutive month.

Strong demand for inputs and shortages of spare capacity at suppliers were factors that led to a further sharp rise in average input prices during April. That said, the rate of input cost inflation eased since the previous month and was slightly below the average for 2007 so far. In response to higher raw material costs, German manufacturers reported a solid increase in factory gate prices, but the rate of inflation eased to a six-month low.

Panel members indicated a further robust increase in work-in-hand during April, with around one-third of respondents reporting a rise. Firms noted that strong new order growth and, in some cases, a lack of spare capacity at their plants had led to backlog accumulation. In response to rising workloads, German manufacturers again sought to raise production capacity by taking on extra staff. Employment growth remained broad-based in April, with investment goods producers indicating the sharpest increase.