02.08.2018

PMI rises amid faster output and new order growth

Output growth accelerates to three-month high, Input price inflation weakest since April, but marked overall.

Amazingly durable: German industry continues to be relatively unimpressed by the numerous international disruptive factors. Photo: pixabay.com Amazingly durable: German industry continues to be relatively unimpressed by the numerous international disruptive factors. Photo: pixabay.com

The German manufacturing sector regained growth momentum in July, with the headline PMI rising from June’s 18-month low. Rates of output and new order growth accelerated from recent lows in June, although increases did not recover to the respective paces seen at the start of the year. Consequently, the rate of job creation remained steep and purchasing activity rose at a faster pace.

Meanwhile, the rate of input cost inflation softened slightly to a three-month low but remained marked overall. On a positive note, output expectations improved and were the strongest since April.

The headline IHS Markit/BME Germany Manufacturing PMI – a single-figure snapshot of the performance of the manufacturing economy – posted 56.9 in July, up from 55.9 in June. The start of the third quarter indicated a sharp improvement in operating conditions, with manufacturing growth regaining momentum.

The pick-up in overall manufacturing growth was aided by a stronger rise in output levels, the fastest for three months. Alongside greater domestic and foreign client demand, panellists stated that efforts to clear backlogs drove a quicker upturn. All three monitored sectors reported a rise in production levels, led by those in the investment goods category.

The upturn in new business accelerated from June’s recent low, reportedly driven by stronger client demand and greater new order volumes. Although the pace of expansion did not recover to the rates seen at the start of the year, it was solid overall and faster than the long-run series trend. Exporting manufacturers also signalled the quickest rise in new business from abroad since April.

Employment growth continued to expand sharply in July, with the rate of job creation dipping only slightly from that seen in June. Panellists commonly attributed job creation to efforts to bolster production capacities. Despite a faster rise in new orders, backlog growth eased slightly to the weakest in two years.

On the price front, input cost inflation remained marked, with manufacturers reporting further rises in raw material prices. Some respondents highlighted steel costs and environmental regulations in China as key factors behind greater cost burdens. Amid robust demand conditions, firms were able to partly pass higher costs on to clients through increased charges. The rate of inflation was sharp, accelerating from June’s eight-month low.

Meanwhile, purchasing activity increased at a solid and faster rate, in line with greater production requirements. A number of survey respondents reported greater efforts to stockpile amid ongoing supply shortages and a marked lengthening in lead times.

German manufacturers indicated a stronger degree of optimism in July, with the level of positive sentiment reaching a three-month high. Optimism stemmed from anticipations of further new order growth. However, some raised concerns regarding uncertainties surrounding tariffs.

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