Markit/BME Germany Manufacturing PMI
Manufacturing boom shows signs of easing amid supply-chain constraints.
Germany’s booming manufacturing sector grew at a slightly slower rate in February, according to the latest PMI survey data from IHS Markit and BME, with reports of supply-chain bottlenecks helping drive up costs and prices charged at the factory gate.
The headline IHS Markit/BME Germany Manufacturing PMI – a single-figure snapshot of the performance of the manufacturing economy – dipped to 60.6 in February, from January’s 61.1. The latest reading was well above the 50.0 nochange mark, indicating another month of strong growth within the sector. However, since reaching a record-high at the end of 2017, the PMI has retreated for two consecutive months, down to its lowest level since last October.
Despite easing in February, output growth across Germany’s factories remained strong and among the highest seen since early-2011. The expansion was led by consumer and capital goods sectors, which both recorded similarly steep increases in levels of output. The month also saw a sharp rise in the production of intermediate goods, i.e. items used as inputs in the manufacture of other goods.
Manufacturers expanded production amid another marked increase in new orders. The rate of growth in order books slowed, however, with inflows of new business from abroad showing the smallest rise for seven months (albeit still growing strongly overall).
Manufacturing employment continued to rise during February as firms looked to boost capacity. Although easing for the third month running, the pace of job creation remained close to the fastest seen in the survey’s near 22-year history. Backlogs of work continued to accumulate despite the expansion in staffing capacity, albeit rising at the slowest rate for ten months.
February’s survey meanwhile revealed yet more pressure on supply chains, as manufacturers faced the greatest monthly increase in average lead times ever recorded. Many firms commented on capacity bottlenecks at suppliers as well as a lack of availability of materials.
With demand for inputs outstripping supply, February saw a further steep increase in average prices paid for purchases. The rate of inflation eased from January’s 81-month high, but it was nonetheless the third-quickest since April 2011. Steel was cited as one of the main drivers of the overall cost increase, while manufacturers also reported paying more for plastics and energy.
The sustained upward pressure on firms’ costs consequently led to a further steep rise in prices charged by goods producers. Furthermore, having picked up for the second month running, the rate of output price inflation was the strongest seen for nearly seven years.
Manufacturers remained confident of output rising over the next 12 months in February. However, the degree of optimism was at a threemonth low, reflecting worries about price pressures and a potential overheating of the sector.