October’s PMI data underlined the considerable extent to which the global financial crisis has affected the German manufacturing sector, with output and new orders both falling at the steepest rates since the survey began in April 1996. The record slump in incoming new work primarily reflected concern about worldwide economic prospects as global credit market turmoil deepened in October. There were also reports that clients had become increasingly cautious about the impact of tighter credit availability on their cash flow. The investment goods sector was particularly hard hit in October, as difficult economic conditions prompted some companies to cut back on capital expenditure plans.
At 42.9 in October, down from 47.4 in September, the seasonally adjusted Markit/BME Purchasing Managers’ Index® (PMI®) – designed to give a single-figure snapshot of operating conditions in the manufacturing economy – sank to its lowest level for seven years, with all five component indexes exerting a negative influence on the headline figure.
Production levels have now fallen for three consecutive months, with the latest decline broad-based across the three market groups. Anecdotal evidence suggested that a rapid decline in new orders, combined with falling backlogs and unwanted inventory building, had led to a steep drop in output requirements.
October data pointed to a survey record contraction of new business from abroad, with by far the fastest rate of decline recorded in the investment goods sector. Survey respondents widely commented on deteriorating economic conditions in key foreign markets, particularly the UK, the US and other Eurozone countries.
German manufacturers responded to weak market demand by trimming the size of their workforces for the first time since September 2005. Job cuts were recorded in all three product sectors in October, with firms generally pointing to reductions in temporary staff at their plants.
Input cost inflation eased sharply to a five-year low in October, following falling commodity prices on world markets. This led to a further moderation in output charge inflation, which was the weakest recorded in 2008 to date. Firms also attributed slower factory gate inflation to competitive pressures.
Meanwhile, supplier performance improved at the most marked pace since December 2001, reflecting a steep contraction of demand for raw materials.