01.12.2020

Manufacturing recovery continues in November

Output and new orders continue to rise strongly, but rates of growth ease. Factory employment shows slowest decline since June 2019. Input price inflation at 21-month high as supply chains pressures increase.

The health of Germany's manufacturing sector continued to improve in November, latest PMI® survey data showed. There was a slight loss of momentum in the pace of growth, however, with both output and new orders rising more slowly amid a second wave of coronavirus disease 2019 (COVID- 19) cases and new lockdown measures at home and abroad. At 57.8, 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 firmly inside growth territory in November. Notably, however, the latest reading was down slightly from October's two-and-ahalf year high of 58.2, the first fall in the PMI for seven months. The slight drop in the headline PMI was in part driven by the new orders index which, after hitting a record high in October, pointed to the slowest rate of growth for three months (albeit one that was still sharp by historical standards). Detailed data showed renewed weakness in demand for consumer goods, which was in turn partly linked to the closure of the hospitality sector. Makers of intermediate and capital goods recorded further sharp increases in new orders, albeit with some reports of the second wave of virus infections causing hesitancy among clients. November's survey showed the manufacturing sector being supported by sustained growth in new export orders. Surveyed firms commented on rising sales to mainland Europe and Asia, especially China. Although the rate of increase ticked down to a three-month low, it was still strong overall. It was a similar picture for output levels, which rose sharply again in November, but at the softest rate since August. Strong growth in the intermediate and capital goods categories overwhelmingly offset renewed weakness in consumer goods production. German manufacturers continued to trim payroll numbers during November, citing lower capacity utilisation since the pandemic and efforts to cut costs. However, having eased for the fourth month in a row, the rate of decline in factory employment was the slowest since June 2019. Contributing to the slowdown in staff cuts was a further build-up of backlogs of work. Work-in-hand accumulated at a sharp rate that was little-changed from October's 34-month high. In some cases, firms reported sales outstripping production which, coupled wit deliberate efforts by some manufacturers to streamline inventories, led to a sharp and accelerated drop in stocks of finished goods – the most marked since October 2009. Pre-production inventories also fell at a quicker rate in November, the fastest seen since January, despite manufacturers ramping up their purchasing activity during the month. November saw supply chain pressures increase, with lead times on inputs lengthening to the greatest extent since the COVID-19 related shutdowns in April. This was a factor behind an uptick in input price inflation which, after turning positive in October for the first time in one-and-ahalf years, strengthened to a more solid rate that was the fastest since February 2019. Factory gate charges also increased more quickly in November, though the rate of inflation remained only mild overall. Lastly, November's survey highlighted a rise in manufacturers' expectations towards output over the next 12 months. The degree of optimism was the second-highest on record (since July 2012), supported by growing hopes of an end to the pandemic and an improvement in demand.