PMI slips further from March's record high

Growth of Germany's manufacturing sector showed a further loss of momentum in May, constrained by worsening supply-chain disruption, latest PMI® survey data from IHS Markit showed. Reports of delays in the receipt of inputs reached a new record high, with bottlenecks in turn pushing up the rate of cost inflation well beyond anything seen before in the series history. Still, goods producers remained strongly optimistic about the outlook, and continued to up the rate of job creation in order to expand capacity and in anticipation of growth over the next 12 months. 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 – dipped for the second running in May, easing further from a record high at the end of the first quarter. Nevertheless, at 64.4 (from 66.2 in April), the index was still well above the 50.0 nochange threshold. Though still strong by historical standards, the rate of growth in output slowed notably since April as an increased number of businesses highlighted disruption from shortages of materials and components. The loss of momentum in May was led by the investment goods category. It was a similar picture for new orders, which remained in strong growth territory overall but registered the softest rise for three months. Surveyed business continued to report increased demand both domestically and abroad, though at the same time there were several mentions of shortage-related downtime at customers weighing on intakes of new work. With growth of new orders continuing to outpace that of output, May saw a record increase in backlogs of work for the third month in a row, as well as a sharp and accelerated drop in stocks of finished goods. The rate of job creation among goods producers continued to accelerate mid-way through the second quarter, reflecting increased efforts to expand staffing capacity. The rise in employment was the steepest seen since February 2018 and led by the investment and intermediate goods sectors. There were, however, some reports of cost management constraining hiring. Despite manufacturers recording a nearrecord rise in purchasing activity in May, pre-production inventories continued to fall markedly due in part to longer supplier delivery times. The number of firms reporting delays stood at a new record high of 79%, with many highlighting shortages of electronic components, plastic, steel and timber. Logistics issues, including disruption to sea freight, were also widely cited as factors leading to longer delivery times. The supply bottlenecks in turn put further upward pressure on manufacturing input costs. The rate of inflation jumped sharply since April and registered comfortably above the previous record high set in February 2011, with 90% of manufacturers noting higher average input costs. This was more than twice the proportion of companies that recorded higher factory gate charges. Still, the extent to which output prices increased in May was another record for the series, following those set in March and April. Looking ahead, German manufacturers continued to report high expectations for output in 12 months' time, citing hopes for a continued recovery in demand as COVID-19 restrictions are lifted, and the easing of supply issues. The degree of optimism showed little change from March's seriesrecord high (data on expectations were first collected in July 2012).