Manufacturing PMI climbs to 26-month

Sharp increases in output and new orders at end of third quarter, rate of job shedding slows, but stocks show further steep declines and 0utput expectations improve to highest since January 2018

September's PMI survey showed more signs of improvement across the German manufacturing sector, including stronger rates of growth in output and new orders as well as a slowdown in the pace of job cuts. Business expectations also strengthened, although the impact of the coronavirus disease 2019 (COVID-19) continued to be seen in falling stock of purchases as firms looked to increase liquidity. The headline IHS Markit/BME Germany Manufacturing PMI – a single-figure snapshot of overall business conditions – remained on a steep upward trajectory in September, climbing from 52.2 in August to a 26-month high of 56.4. Underlying data showed operating conditions improving across each of the three main industrial groupings – consumer, intermediate and investment. The main highlight of the survey was a steep and accelerated increase in new orders. Growth was among the strongest recorded since data collection began in 1996. Supporting the upturn was a sharp rise in new export orders, which posted the largest increase since December 2017 amid reports of improved demand across Europe, China and Turkey. Production was ramped up accordingly in September, with the rate of growth accelerating to the quickest in more than two-and-a-half years. Even so, data showed a marked increase in backlogs of work across the manufacturing sector at the end of the third quarter. Factory payroll numbers fell again in September. However, rising workloads helped to slow the rate of job shedding for the second month in a row, with employment recording the smallest decline since before the COVID-19 shutdowns in March. September saw a strong increase manufacturers' purchasing activity. However, while the rate of growth in the quantity of purchases was the fastest seen since February 2018, it was still somewhat slower than the increases in both output and new orders. This partly reflected the efforts of some firms to use up stocks as they looked to increase liquidity. Postproduction inventories likewise fell markedly, down for the fourth month in a row. Greater demand for raw materials and semimanufactured goods, allied with reports of disruption from short-time work schedules among suppliers, led to an increase in lead times on inputs in September. The deterioration in vendor performance was the worst since May, although there remained far fewer delays than seen during peak lockdown in the spring. Average prices paid for inputs meanwhile fell for the seventeenth month in a row. Following August's relative mild decrease, which was the second-weakest in the current sequence, the rate of decline accelerated slightly in September. Reports from surveyed businesses highlighted that a stronger euro had reduced the cost of imported goods, while others also commented on lower market prices for commodities such as steel. Strong competition for new work maintained downward pressure on factory gate prices in September. Though the rate of decline quickened slightly for the second month in a row, it remained only modest overall and much slower than seen during the second quarter. Lastly, latest data showed a further improvement in manufacturers' expectations towards output over the next 12 months. Optimism reached the highest since January 2018, amid signs of clients upping spending and growing hopes of a post COVID-19 recovery in market demand.