German manufacturing companies signalled that further adjustments to shrinking demand were made in January, resulting in new survey record declines in output and employment. Inventories and purchasing activity were also scaled back substantially, reflecting a combination of falling new orders and efforts to optimise cash flow.
Production stoppages at automobiles plants remained a principal source of weakness, with a number of intermediate goods producers experiencing a related drop in incoming new work. Meanwhile, the rate of input price deflation was the fastest since the survey began in April 1996, allowing firms to make deeper cuts in their output charges.
At 32.0 in January, down from 32.7 in December, the headline seasonally adjusted Markit/BME Purchasing Managers’ Index® (PMI®) – designed to give a single-figure snapshot of operating conditions in the manufacturing economy – fell to a series record low for the third consecutive month. However, the month-on-month drop in the level of the PMI was the smallest since May 2008 (when the headline index was unchanged from one month earlier).
Manufacturing output declined for a sixth consecutive month in January, and the rate of contraction remained sharp. There were widespread reports that output levels had been reduced in order to realign production with demand. Data pointed to a further rapid deterioration in new order books in January, although it was slightly less marked than December’s survey record. Anecdotal evidence suggested that clients were again reluctant to commit to new orders amid deteriorating global economic conditions.
January data indicated a sharp fall in backlogs of work, albeit less marked than the previous month’s survey record. A number of firms responded to spare capacity by shedding jobs in the latest survey period, with the rate of decline in workforce numbers the fastest in the history of the series. Anecdotal evidence also suggested that efforts to realign labour requirements with demand often resulted in shorter working hours at their plants and the termination of temporary contracts.
Inventories of raw materials were reduced at a survey record rate in January, as a result of lower workloads and efforts to increase working capital. This also led to a further rapid decline in purchasing activity and a corresponding improvement in supplier delivery times. Weak demand for inputs, as well as lower global raw material prices, allowed firms to negotiate further substantial price reductions from suppliers.