The increase in the headline index was primarily driven by a robust rebound in output growth at the start of 2012. Production levels rose for the first time in four months and at the fastest pace since June 2011, led by an upturn in both intermediate and investment goods output. Higher output volumes were supported in part by greater work on unfinished business in the manufacturing sector. This was highlighted by backlogs of work falling in January for the fifth month in a row.

 

Meanwhile, new orders continued to decline at the start of the year, although the rate of contraction was relatively modest and the slowest in the current seven-month period of reduction. Latest data indicated that the decline was driven by a marked fall in new work received in the consumer goods sector.

 

A further solid drop in export sales contributed to the overall fall in new business levels in January. Lower levels of new work from abroad have been seen in each of the past seven months, largely reflecting weaker global demand and uncertainty about the economic outlook. In line with recent trends, lower new export orders were recorded across all three market groups monitored by the survey.

 

Anecdotal evidence from survey respondents suggested that subdued client demand resulted in a general lack of pressure on operating capacity at their plants. This in turn contributed to a relatively modest rate of employment growth compared with that seen across 2011 as a whole. The pace of job creation in January picked up since the previous month but was still the second-slowest since August 2010. Where firms added to their payrolls, this was mostly linked to long-run expansion plans.

 

January data pointed to a greater degree of caution about inventory levels in the German manufacturing sector, primarily in response to lower workloads. Stocks of finished goods fell for the second month running and pre-production inventories dropped at the sharpest pace since February 2010. Nonetheless, input buying rose marginally and there was a corresponding lengthening of supplier delivery times.

 

Input prices increased slightly in January, thereby ending a three-month period of decline. This was generally linked to higher oil-related costs. Factory gate price inflation remained subdued, but still reached its highest level since August 2011.