manufacturing sector sees stronger growth in February
Production rises steeply amid sustained upturn in new orders Record supply delays lead to higher prices and lower stocks Manufacturers remain strongly optimistic towards the year-ahead outlook.
February PMI survey data showed strong and accelerated growth in Germany's manufacturing sector, driven in part by robust demand from abroad. Less positively, however, there was a further deterioration in supply-side conditions, with reports of delivery delays hitting a record high and costs rising sharply. Nevertheless, manufacturers remained strongly optimistic about the year-ahead outlook for production.
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 steeply to a 37-month high of 60.7 in February, from 57.1 in January.
Contributing to the rise in the headline PMI was a faster increase in new orders. Having eased to a seven-month low at the start of the year, order book growth reaccelerated to the quickest since last October. There were widespread reports of higher demand from Asia (especially China), the US and across Europe, with export sales rising to the greatest extent since December 2017.
Production levels were ramped up accordingly, increasing at the fastest rate for three months and led by particularly sharp growth in the capital goods category. Even so, latest data showed a further marked rise in backlogs of work in February.
In many cases, manufacturers reported using stocks of finished goods to meet demand. This resulted in a ninth straight monthly decline in post-production inventories, and one that was the most marked since last November. Surveyed businesses indicated that supply constraints were a factor.
February's survey saw record reports of increased lead times on inputs, with 64% of surveyed firms facing delays. Anecdotal evidence highlighted a lack of available transport capacity (particularly shipping containers) and shortages of key inputs such as steel, plastics and electronic parts.
Concerns about increasing lead times on inputs, combined with the need to fulfil higher production requirements, led to a sharp rise in manufacturers' buying levels in February. The increase was the seventh in as many months and the fastest since January 2018. Still, stocks of purchases fell for the tenth straight month.
The combination of higher demand for inputs and squeezed supply resulted in a further increase in purchase prices in February. Furthermore, the rate of cost inflation picked up to the quickest since April 2011 and was among the fastest seen in nearly 25 years of data collection. Steel was widely reported as up in price, alongside chemicals, plastic and electronic parts.
In line with the trend in costs, average prices charged by manufacturers increased at a faster rate in February. Output price inflation had remained relatively mild in the previous four months, but accelerated sharply midway through the opening quarter to the quickest for nearly two-anda-half years.
Turning to expectations, manufacturers were strongly confident about production levels rising over the next 12 months, reflecting hopes for a further recovery in demand as COVID-19 restrictions are eased and client confidence improves. Moreover, the degree of optimism improved to a fresh record high (since mid-2012).
Lastly, February's survey showed a stabilisation in factory employment, thereby ending a near two-year sequence of staff cuts. A rise in workforce numbers at capital goods producers offset declines in the consumer and intermediate goods categories.