Industry continues to show strength
Germany's manufacturing sector continued to enjoy a historically strong rate of growth in April, latest PMI® survey data showed. Expansions in output and new orders eased but remained close to the record highs seen in March, while growing pressure on capacity and strong business confidence fuelled an acceleration in job creation. Severe supply-side disruption remained a hindrance to the sector's performance, however, weighing on output and contributing to rises in both input cost and output price inflation, the latter to a new record high. 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 – remained in strong growth territory in April, at 66.2. This was down slightly from March's record high of 66.6 but still the second-highest reading since the start of data collection in 1996. Though easing since the previous survey period, the rates of growth in output, new orders and exports were still faster than at any other time in the survey history. Survey respondents continued to report strong demand both domestically and abroad, with many highlighting sales wins across Asia (particularly China). The upturn in output continued to be led by the investment goods category. Both the consumer goods and intermediate goods sub-sectors also recorded strong growth, albeit with the latter showing a loss of momentum amid reports of supply disruption holding back production. Backlogs of work continued to accumulate at manufacturers during April, with many reporting difficultly keeping up with demand. Moreover, for the second month in a row, the rate of growth was quickest in the series history (since September 2002). With the increase in new orders outpacing that of output, stocks of finished goods fell for the eleventh month in a row. Needing to expand capacity, manufacturers upped the rate of job creation at the start of the second quarter. Employment growth reached the quickest since August 2018 and was broad-based by main industrial grouping, with the consumer goods category seeing a first – albeit modest – increase in staffing numbers for over a year. Higher production requirements, combined with some advanced purchasing of inputs by firms concerned about future supply, resulted in a record increase in buying levels in April. Stocks of purchases nevertheless remained in decline, as inputs were quickly used up in the production process and lead times on deliveries lengthened further. Indeed, April data showed the continuation of the worst spell of supply disruption in the survey history. Surveyed firms widely commented on shortages of raw materials and components, as well as highlighting a continued squeeze on freight capacity and disruption from the Suez Canal blockage. These supply side pressures were further reflected in an acceleration in the rate of input cost inflation to the quickest in over a decade. Panellists reported increases in prices paid for a broad range of items, including chemicals, electronics, metals (particularly aluminium and steel), packaging, plastics and wood. The rate of factory gate charge inflation meanwhile accelerated to a new record high in April, as supportive demand conditions enabled the partial pass-through of higher costs. It remained noticeably slower than the rate of increase in costs, however. Lastly, April's survey pointed to a renewed improvement in German manufacturers' expectations for output over the next 12 months, taking the overall degree of optimism above the previous record high set in February.