Manufacturing staff cuts deepen in May

downturns in output and new orders remain severe

 Germany's manufacturing sector continued to be severely impacted by the coronavirus disease 2019 (COVID-19) pandemic in May, with the rates of decline in output and new orders remaining sharp following April's record falls. Notably, with firms operating well below full capacity and remaining pessimistic about the outlook for output, the rate of factory staff cuts accelerated to the quickest for 11 years. The headline IHS Markit/BME Germany Manufacturing PMI – a single-figure snapshot of overall business conditions remained deep in contraction territory in May, at 36.6. This was up only slightly from April's 11-year low of 34.5, as slower falls in output and new orders were partly offset by a steeper decline in employment, a renewed drop in stocks of purchases and a less marked lengthening of supplier delivery times. Amid reports of reduced productive capability and a sustained slump in demand, German manufacturers continued to report lower output in May. However, whilst remaining marked by historical standards, the rate of decline was discernibly slower than in April as more firms reported a pick-up in output. The same trend was seen in all three main industrial groupings covered by the survey – consumer, intermediate and investment goods. Client closures and hesitancy among businesses and consumers alike were key factors behind a further decrease in new orders in May, with export sales continuing to fall more sharply than overall order book volumes. Rates of decline slowed on both fronts, though less so than was the case for output. As such, data showed a continued build-up of finished goods. May saw backlogs of work across the manufacturing sector continue to fall sharply and at a rate that was little-changed since April. Goods producers, thereby, further reduced staffing capacity during the month, partly through the non-renewal of fixed-term contracts and redundancies. Moreover, the rate of job losses continued to accelerate, reaching the quickest since May 2009. A lack of confidence among manufacturers for a swift recovery in output levels was another factor that contributed to staff cuts during May. Though improving further from March's historic low, sentiment towards output over the next 12 months remained firmly in negative territory. Purchases of raw materials and semi-manufactured meanwhile continued to fall sharply during May. This reflected lower production requirements, as well as efforts by some firms to partially unwind input inventories. After rising in April for the first time in 15 months, stocks of purchases at German manufacturers showed a slight decline midway through the second quarter. This was consistent with signs of supply chain pressures gradually starting to ease, with reports of delivery delays down from April's record high. Input prices paid by German manufacturers continued to fall in May, linked to a demand-related slump in commodity prices and supplier discounting. Factory gates charges also fell, dropping for the eleventh month in a row, albeit at the slowest rate since February.