German manufacturing continues to regain

PMI hits strongest level in July since April, and third-highest on record +++ Survey-record increase in employment +++ Both price indices reach new record highs

German manufacturing recorded another historically strong performance in July, according to the latest PMI figures. Following a slight loss of momentum in May, the overall rate of growth accelerated further and was the third-highest in any month since the survey began in 1996. New orders rose at the third-strongest rate ever recorded, leading to a nearrecord increase in backlogs despite an unprecedented rise in employment. Output growth was strong overall but eased since June, constrained by ongoing supply shortages. July data also indicated the fastest rates of input and output price inflation in the survey history. The headline IHS Markit/BME Germany Manufacturing PMI – a weighted aggregate of measures of new orders, output, employment, suppliers' delivery times and stock of purchases – rose for the second month running to 65.9 in July, from 65.1 in June. The latest figure was the third-highest since the survey began in 1996, below only the peaks registered in March and April this year, and signalled rapidly improving business conditions at German goods producers. Since the survey began in April 1996 the PMI has trended at 52.3. Four of the five PMI components provided strongly positive contributions to the headline figure in July. The exception was stocks of purchases, although it registered the weakest decline for over a year. The new orders and employment components exerted the strongest directional influences on the PMI since June, offset slightly by output. The rate of growth in new orders accelerated further in July, following a brief loss of momentum in May. The rate of expansion was the third-fastest on record, surpassed only by those registered in March and April. The stronger overall increase in demand occurred despite new export order growth easing to a fivemonth low, although demand from Asia remained strong. To meet rising demand and increase capacity, manufacturers expanded their workforces at the strongest rate ever recorded in July. The rate of job creation has gained momentum every month since employment began rising again back in March. Output rose sharply overall during the month, but the rate of growth slowed since June and was the second-weakest of the past five months. This reflected severe ongoing supply chain disruption from raw material shortages and shipping delays. Consequently, backlogs of work rose at the second-fastest rate on record, and stocks of finished goods contracted sharply. Manufacturers expanded purchasing activity at one of the fastest rates to date in July, but supplier delays meant that pre-existing input stocks were depleted further to support production. Output expectations remained strongly positive, but sentiment moderated to the lowest in 2021 so far. There was some evidence of reduced pressure on supply chains in July, with the incidence of longer lead times the smallest in five months. But with demand gaining further momentum, input price inflation accelerated to a new surveyrecord high for the second time in three months. Manufacturers continued to pass on higher costs to customers, with output price inflation also setting a new record high during July.