EMI: Supply bottlenecks lead to production interruptions
Current IHS Markit/BME Purchasing Managers' Index (EMI): Production index plummets to lowest level since August 2020 +++ New orders continue to grow, albeit at a slightly slower pace than recently +++ Cost pressure remains at historically high level
German industry struggled to keep up with high demand in August due to persistent supply bottlenecks. Growth in production remained significantly below that of new orders. In addition, industrial companies' confidence about future growth declined slightly, mainly due to increasing price pressure.
This is shown by the seasonally adjusted IHS Markit/BME Purchasing Managers' Index (EMI), which fell by 3.3 points in August. However, at 62.6 points (July 65.9), the German PMI was still comfortably in the growth zone in August and well above the reference line of 50 points.
"Corona remains an issue affecting both growth and inflation. Both have recently taken something away from the very good mood", commented Dr. Gertrud R. Traud, chief economist at Helaba Landesbank Hessen-Thüringen, on the latest EMI data at the request of BME. The boom in demand after the removal of the restrictions meets a still limited supply: missing containers, trucks or semiconductors are to be mentioned in this context. Prices rose accordingly. Growth in the industry could be higher if the supply bottlenecks did not lead to production delays. "In the medium term, however, it can be assumed that these supply difficulties will also ease again. The historically high order backlog thus already secures growth into 2022," the Helaba bank director added in her statement for the BME.
"It is apparent that the first steps of the economic catch-up process could be taken more easily and more quickly than will be the case with the next and final steps," Dr Ulrich Kater, chief economist at DekaBank, told BME. An aggravating concomitant is increasingly evident in the availability and prices of intermediate goods and raw materials, he said. Companies indicate that the upward trend will continue, but at a slower pace than in the past months.
Commenting on the latest development of the EMI, Dr Heinz-Jürgen Büchner, Managing Director Industrials, Automotive & Services at IKB Deutsche Industriebank AG, told the BME: "The tight market supply continued for most raw materials in August. However, there were first signs of relief on the steel input material side. Spot market quotations for iron ore in China fell by a good quarter on average for the month compared to the level in July. A normalisation of Brazilian ore production contributed to this. As scrap prices also fell slightly, the pressure on steel prices eased somewhat. OPEC's announcement to expand production again from October 2021 should also have a price-stabilising effect."
The development of the EMI sub-indices at a glance:
Production: After adjusting for seasonal factors, production growth in the manufacturing sector slowed again. Although the production index remained comfortably above the reference line of 50.0 points, it slipped by more than five points to its lowest level in a year. Smaller increases were recorded in all sub-sectors of industry. According to survey participants, supply bottlenecks in particular led to production losses or interruptions.
New orders: Demand remained high in August and again provided manufacturers with plenty of new orders. Although the growth rate weakened slightly compared to July, it was still among the strongest in the survey history since 1996. It is remarkable that the new orders index is more than six points higher than the production index - a new record.
New orders for exports: The upswing in exports lost some momentum again. After the record high in March, growth slowed for the fourth time in the last five months to the lowest level since January. The intermediate goods sector defied the trend and recorded the largest gain of the three sub-sectors covered by the survey.
Business expectations: The survey results signal a further slight deterioration in optimism about business activity over the year. According to the survey, confidence fell to its lowest level since October last year, but is still above the long-term average (since July 2012). The massive supply bottlenecks and the associated price pressure are likely to slow down growth, according to the fears of many survey participants.
Employment: Efforts by many industrial firms to expand capacity against a backdrop of booming demand led to the sixth consecutive increase in employment in August. Although the growth rate remained at a very high level, it fell to its lowest level in four months compared to the record high in July. Once again, the strongest job growth was recorded in the capital goods sector, followed by the intermediate goods sector.
Purchasing prices: Cost pressures in industry remain high. Although the rate of purchase price inflation eased minimally from July's all-time high, it was still the third highest since data collection began. Many survey respondents reported that aluminium, electronics, plastics, steel and wood in particular rose in price again.
Selling prices: Selling prices also rose sharply again, reflecting steadily rising costs. After reaching new highs in each of the last five months, the sales price index eased slightly in August. Nevertheless, the latest increase was the third highest in the survey's history (since 2002). Manufacturers of intermediate goods raised their prices the most.
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).