The turnaround in the performance of the German manufacturing sector gained further momentum in August. This was highlighted by the fastest month-on-month rise in output since June 2008 and the strongest rate of new order growth for seventeen months. Job shedding continued to ease in August, while the latest drop in output charges was the weakest recorded in 2009 to date.
The headline seasonally adjusted Markit/BME Purchasing Managers’ Index® (PMI®) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – rose for the seventh month running in August. At 49.2, up from 45.7 in July, the latest reading was the highest for twelve months. Solid rises in output and new orders were the main positive influences on the PMI in August. A sharp drop in employment levels kept the index fractionally below the neutral 50.0 mark. However, the latest PMI reading was much stronger than the record low seen in January 2009 (32.0).
Output growth was sustained for a second month running in August. All three market groups recorded an increase in production levels since July, with investment goods output registering the sharpest rise.
Volumes of new work received by manufacturers in Germany increased again in August, and at the strongest rate since March 2008. Anecdotal evidence suggested that improved sentiment among clients had supported the latest rise in new orders.
Stronger demand from abroad was commonly cited as a factor supporting new business volumes in August. The index measuring new export orders was at its highest level since March 2008. Investment goods producers signalled the most marked month-on-month rise in new work from abroad. Solid growth was also recorded in the consumer and intermediate goods sectors.
Despite a continued recovery in demand, backlogs of work fell slightly in August and companies pointed to ongoing adjustments to low capacity utilisation at their plants. This was highlighted by further steep reductions in employment numbers and inventories in August. Job cuts have now been recorded for eleven successive months, although the rate of reduction was the slowest since November 2008.
The rate of price discounting among German manufacturers eased to its least marked for eight months in August. However, the latest reduction in output charges was still faster than ever recorded by the series prior to 2009. Lower factory gate prices reflected a combination of strong competition and falling costs. Input prices dropped sharply in August, albeit at a much slower rate than earlier in the year.