EMI: Industry growing more dynamically again

Current IHS Markit/BME Purchasing Managers' Index (EMI): Production and new orders pick up for the first time in three months +++ Supply bottlenecks slow performance and drive up costs +++ Sales prices at new record high

Growth in Germany's manufacturing sector gained some momentum in June. Both production rates and new orders rose more strongly for the first time in three months. Nevertheless, widespread supply bottlenecks were once again a key issue in the latest survey results. After slight declines in the previous two months, the seasonally adjusted IHS Markit/BME Purchasing Managers' Index (EMI) gained some ground in June, rising to 65.1 points from 64.4 in May. The upswing was mainly driven by the higher production rate, which rose most significantly in the intermediate goods sector. While many companies ramped up production to meet the higher demand, many survey participants also reported that the persistent material bottlenecks were again threatening production levels. "German industry obviously continues to defy individual difficulties such as limited availability and the high prices of some intermediate goods. Global demand is high and the economic catch-up process is continuing. Above all, the very high order backlogs suggest that little will change in this picture in the near future," Dr Ulrich Kater , chief economist at DekaBank, told BME. Dr Heinz-Jürgen Büchner , Managing Director Industrials, Automotive & Services at IKB Deutsche Industriebank AG, told BME about the latest development of the EMI sub-index for purchasing prices: "The rise in commodity prices has continued, but at a slower pace for some commodities. The market supply is still too tight. In the case of steel prices, however, the peak for spot market prices is probably now slowly being reached. The crude oil markets were extremely nervous in the run-up to the OPEC ministerial meeting at the beginning of July. The hope here is for an increase in production, which could lead to an easing of prices in the second half of 2021. In addition, many companies in the manufacturing sector are facing an immense burden from the sharp rise in transport prices, which often cannot simply be passed on. Together with higher energy prices, all this is likely to have a strong negative impact on the earnings situation of many companies."

The development of the EMI sub-indices at a glance:

Production: Production growth regained momentum in June after declining somewhat in the previous two months. More than one-third of respondents reported a higher rate of output, most of which was attributed to growth in new orders. However, a large number of survey respondents said that persistent materials bottlenecks had slowed expansion. New orders: The rate of increase in new orders accelerated slightly in June. However, the seasonally adjusted sub-index remained below the highs of March and April. The underlying data continue to point to rising demand in all three sub-sectors of industry, with intermediate goods and capital goods continuing to make particularly strong gains. New export orders: Strong gains were again recorded in exports. The corresponding sub-index remained almost unchanged from the previous month and thus continued to be at one of the highest levels in the survey's history (since 1996). As some manufacturers indicated, the latest growth impulses came mainly from US and European markets. Business expectations: The business outlook sub-index improved slightly again in June, even surpassing the previous all-time high in April. Some 48 per cent of the manufacturers surveyed expect higher production levels within the year, basing this assessment mainly on a further increase in demand as soon as the effects of the pandemic subside. In contrast, only eight per cent expect production to contract. Employment: The continued efforts of many industrial companies to expand capacity led to the fourth consecutive increase in employment. What's more, the pace picked up again slightly, so that the corresponding sub-index climbed to its highest value since January 2018. The largest increase was recorded by manufacturers of capital goods, followed by producers of intermediate goods. Purchase prices: The extremely high level of purchase prices continued in June. The main cause, as in previous months, was the imbalance of supply and demand for various materials and components. Electronic components, metals (especially aluminium and steel), packaging, plastics and wood were most frequently reported as more expensive. The seasonally adjusted sub-index eased slightly from May, but still remained significantly higher than at any other time since data collection began. Selling prices: Selling price inflation continued to pick up in June after the number of manufacturers reporting an increase reached a record high for the fourth month in a row. The increase was strongest in the intermediate goods sector. However, selling prices still increased at a much slower pace than purchasing prices. About the EMI: The IHS Markit/BME Purchasing Managers' Index (EMI) provides a general overview of the economic situation in German industry. It is a snapshot of the business situation in manufacturing - calculated from the sub-indices for new orders, production, employment, delivery times and stocks of input materials. The index has been published under the auspices of the BME since 1996. It is compiled by IHS Markit, a provider of business, financial and economic information headquartered in London, and is based on a survey of 500 purchasing managers and managing directors in the manufacturing industry in Germany (selected to be representative of the German economy by sector, size and region). The EMI is modelled on the US Purchasing Managers' Index (Markit U.S. PMI).