Markit/BME Purchasing Managers’ Index, July 2009
July data pointed to a broad stabilisation of output and new order levels at German manufacturing companies. However, substantial job shedding, stock depletion and price discounting served to highlight the ongoing fragility of the sector.
The stabilisation of production and new order volumes represented a marked turnaround from the sharp declines seen in the previous month. This led to the largest ever month-on-month rise in the 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 – from 40.9 to 45.7 in July.
The latest PMI reading was the highest for ten months, but still below the neutral 50.0 mark. The overall deterioration of business conditions primarily reflected sharp reductions of employment levels and pre-production inventories. July’s stabilisation of production followed an eleven-month period of falling output, which peaked in January and represented the longest and deepest contraction in the survey history.
New order volumes rose slightly in July for the first time since June 2008. Anecdotal evidence suggested that inventory cycle effects and the launch of new products had provided a boost to new business levels in July. Demand from abroad declined for the thirteenth successive month, but the rate of contraction slowed sharply and was the weakest over this period.
A slight rise in overall levels of new work did not prevent a further marked reduction in input buying and a steep drop in inventories. Stocks of purchases declined at a near-survey record rate and finished goods inventories were depleted for an eighth successive month. There were reports that weak underlying market conditions and ongoing adjustments to lower workloads meant that stock reduction policies remained prevalent among manufacturing firms.
Latest data pointed to a steep fall in employment levels, extending the current period of decline to ten consecutive months. The rate of job shedding was the least marked since January, but still much sharper than ever recorded by the survey prior to 2009.
Strong competition and pressure by clients to offer price discounts resulted in another sharp drop in factory gate charges in July. Lower output prices were assisted by a rapid fall in average costs. Delivery times for input purchases shortened in July, but the latest improvement in vendor performance was the least marked since September 2008. This was linked by survey respondents to cuts in supplier capacity and working hours.
