04.11.2020 // Politics

PMI climbs to 31-month high of 58.2 in October

New orders post sharpest rise since survey began in 1996 – output expectations weaken for first time in seven months.

Is the German industry heading for heavier waters? Market observers are asking themselves the anxious question of how long the manufacturing industry in Europe's largest economy will be able to successfully combat the corona crisis in view of the rising n Is the German industry heading for heavier waters? Market observers are asking themselves the anxious question of how long the manufacturing industry in Europe's largest economy will be able to successfully combat the corona crisis in view of the rising number of infections. Photo: Peggy Choucar/pixabay.com

Germany's manufacturing sector carried strong growth momentum into the final quarter of 2020, seeing a steep and accelerated increase in output alongside a record rise in new orders, latest PMI survey data showed. However, employment at factories continued to fall, while business confidence in the sector suffered the first setback for seven months.

The continued improvement in operations conditions following the coronavirus disease 2019 (COVID-19) shutdowns earlier in the year was highlighted by 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 – registering 58.2 in October. This was up from September's 56.4 and the highest reading since March 2018.

Contributing to the rise in the headline PMI in October was an uptick in the survey's new orders index, which pointed to the steepest growth in new business at German manufacturers since data collection began in 1996. Surveyed firms reported stronger demand both domestically and abroad, with rising sales to Asia (particularly China) helping lift new export orders to the greatest extent since December 2017.

The rise in new orders in October was met with a further steep expansion in production volumes. Growth on this front was the thirdfastest in the survey's history and reflected sharp increases in output across each of the three main industrial groupings – consumer, intermediate and investment goods.

However, despite rising workloads leading to a further build-up of outstanding business across the sector, manufacturing employment fell for the twentieth month in a row in October. The rate of staff cuts eased slightly to the weakest since before the COVID-19 lockdowns, though it was still marked by historical standards.

By contrast, buying levels among goods producers rose sharply during the month, recording the steepest increase since January 2018. That failed to prevent another marked fall in stocks of purchases, however, as firms reported disruption in the supply of goods as well as efforts to keep stocks low to help with cashflow. That said, the decline in pre-production inventories eased since September, as was the case with stocks of finished goods.

Supply chain pressures increased in October, with lead times on inputs lengthening to the greatest extent for five months. Surveyed firms highlighted the influence of rising demand and short-time work schedules at suppliers. Reports of delays remained well below the levels seen during the initial COVID-19 shutdowns in the spring, however.

Tighter supply conditions were reflected in tentative signs of inflationary pressures, with manufacturing input costs rising – albeit marginally – for the first time in 18 months. Surveyed firms commented on higher prices paid for electronics, metals and fabricated metal products.

Similarly, average factory gate charges rose modestly and for the first time since May 2019, as stronger demand allowed some goods producers to pass on the burden of higher costs to clients.

Turning to expectations for output over the year ahead, October's survey showed a slight weakening of manufacturers' confidence from a 32-month high in September. Still, firms generally remained positive towards the outlook, with many reporting hopes of an eventual end to the COVID-19 pandemic and a subsequent pick-up in market demand.

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