German PMI at all-time high in March

Growth in output and new orders fastest since start of survey in April 1996 +++ Supply delays worsen, putting further upward pressure on prices +++ Expectations remain positive, supporting upturn in factory employment

Latest PMI data showed a marked upswing in the pace of growth of Germany's manufacturing sector at the end of the first quarter, with goods producers reporting the steepest rises in new orders and output since the survey began in 1996. Growing pressure on capacity and strong confidence about the outlook meanwhile led to the first rise in sector employment in more than two years. At the same time, however, the survey indicated a further deterioration in supply-side conditions, with March seeing unprecedented reports of input delivery delays which helped push cost inflation to the highest in over a decade. 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 – moved to an all-time high of 66.6 in March, up sharply from 60.7 in February and above the previous survey high in December 2017 (63.3). The upturn in the manufacturing sector's performance was driven by survey-record growth in new orders. Surveyed businesses reported stronger demand for investment and intermediate goods in particular, though the consumer goods category also saw an improved performance on this front. Growth of new export orders likewise reached a rate that was unprecedented in the survey's 25-year history, with panellists often commenting on higher new orders from Asia (especially China) and the US. Production volumes were scaled up sharply as a result, with the rate of increase surpassing the previous record set in April 2010. Notably, however, the rate of growth was slower than that of new orders and the month saw a record increase in backlogs of work at factories. Post-production inventories fell for the tenth month in a row and at the fastest rate since June 2009, as many manufacturers sold from stock to meet demand. The need to increase capacity saw German manufacturers expand workforce numbers for the first time since February 2019. The rate of growth of employment was solid, although it lagged well behind those of new orders and output. There was also an accelerated increase in manufacturer's buying levels in March. Nevertheless, stocks of purchases were down for the eleventh month in a row, reflecting widespread reports of delays in the delivery of inputs. The survey found that 76% of manufacturers had seen average supplier delivery times lengthen in March, which was new a record for the series and up from the previous high of 64% in February. Delays often arose due to demand for raw materials and components outstripping availability, with electronics, plastics and steel among the items most commonly reported as in short supply. A dearth of shipping containers remained a factor. Higher prices for commodities and other inputs ensued, with the rate of cost inflation accelerating sharply to the second-highest on record (behind that seen in February 2011). The combination of rising costs and strong demand led to a steeper rise in factory gate prices in March. The rate of inflation on this front was in fact the quickest since this series began in September 2002. Finally, manufacturers' expectations towards activity over the coming year remained strongly positive. That said, there was uncertainty among some firms about whether current levels of demand could be sustained, which was reflected in a slight drop in the overall degree of optimism from February's series high (since July 2012).