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Markit/BME Purchasing Managers’ Index, August 2010

Output and new order growth in the German manufacturing sector eased markedly in August, following the near-record highs recorded in the previous month. As a result, the seasonally adjusted Markit/BME Germany Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – dropped to 58.2, from 61.2 in July. The latest reading was still much higher than the long-run series average (51.9), but signalled the weakest improvement in overall business conditions for six months.

August data indicated a further sharp rise in manufacturing production, extending the current period of expansion to fourteen months. The pace of output growth eased from July’s three-month high, mostly reflecting a marked moderation in new business gains. Although still stronger than the long-run survey average, the latest increase in incoming new work was the least marked since December 2009. The deceleration in total new order growth was linked to a weaker contribution from export demand in August. Latest data signalled that growth of new work from abroad eased for the fifth month running to its slowest since January.

Backlogs of work continued to accumulate in the German manufacturing sector, but slower new order growth resulted in the least marked rise in unfinished business for seven months. Companies that reported an increase in backlogs generally attributed this to capacity pressures at their plants. Some firms also pointed to delays in the receipt of raw materials from suppliers.

A number of manufacturers sought to alleviate backlog accumulation at their plants by despatching sales from existing inventories. Consequently, post-production stocks declined for the third successive month and at the fastest pace since February.

Higher capacity utilisation contributed to a solid increase in employment levels in the manufacturing sector. Almost four-times as many firms reported a rise in staffing levels as those that signalled a fall. Although the rate of job creation eased slightly in August, it was the second-fastest since May 2008.
Meanwhile, higher capacity utilisation led to a robust expansion of input buying in August. That said, the pace of growth was the slowest since January, largely reflecting a moderation in new order gains. Companies again reported delays in the receipt of raw materials from suppliers. Vendor performance deteriorated for the thirteenth month running and at a sharp pace. Some manufacturers sought to guard against longer supplier lead times by building safety stocks in August, which in turn led to another modest rise in pre-production inventories in the manufacturing sector.

Manufacturers in Germany signalled a further decline in input price inflation during August. The latest increase in average cost burdens was the slowest since January. This contributed to a moderation in factory gate price inflation. Data showed that output charges rose at a subdued pace that was the slowest in five months.