03.02.2021 // Politics

Upturn in manufacturing continues in January

Output and new orders continue to rise in January, albeit at slower rates. Factory job losses ease as output expectations improve to record high. Cost inflation rises sharply amid unprecedented reports of delivery delays.

The latest EMI data prove it: Sentiment in the manufacturing sector remains good despite the Corona Lockdown. Photo: Gerd Altmann/pixabay.com The latest EMI data prove it: Sentiment in the manufacturing sector remains good despite the Corona Lockdown. Photo: Gerd Altmann/pixabay.com

The upturn in the German manufacturing sector continued into the new year with January PMI® survey data from IHS Markit showing further gains in output and new orders across the sector. The rate of factory job shedding meanwhile slowed as goods producers reported record optimism towards future activity.

However, the survey also revealed a growing incidence of supply-chain bottlenecks linked to shortages of inputs and a lack of available shipping containers, which in turn contributed to a spike in input cost inflation and lower inventories at manufacturers.

At 57.1 in January, 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 – remained firmly inside growth territory, albeit down from December's near threeyear high (58.3) and the lowest for four months.

January data pointed to another marked rise in production volumes across the German manufacturing sector. The rate of growth signalled was slower than those seen in each of the previous four months but still elevated by historical standards.

It was a similar picture for new orders, growth of which remained strong but showed a slight loss of momentum. That was despite a sharp and slightly accelerated increase in international sales, with surveyed businesses frequently commenting on higher demand from China and the US.

The sustained upturn in order book volumes was a reflected in a further rise in backlogs of work at manufacturers in January. A number of firms reported meeting demand by selling directly from their stocks of finished goods, which fell sharply and for the eighth month in a row.

Still, manufacturers continued to trim workforce numbers during January,   continuing a trend of job shedding going back almost two years. However, the rate at which employment fell was the slowest since June 2019, reflecting not only growing pressure on capacity but also improved expectations for future output.

The degree of optimism shown by manufacturers towards production levels in a year's time strengthened to a series record high (since July 2012) in January. Many firms were hopeful of a further recovery in demand and client investment once the coronavirus disease 2019 (COVID- 19) vaccine rollouts were well under way.

In the near-term, however, January's survey pointed to growing risks from supply chain disruption. The number of reports of delivery delays reached a record high at the start of the year, reflecting a combination of growing pressure on suppliers, shortages of materials and components, and logistical issues, particularly around the availability of shipping containers.

There was an associated acceleration in the rate of input price inflation faced by German manufacturers to the highest since July 2018. Increased costs were largely absorbed by goods producers, however, with average factory charges rising only modestly and at a slower rate than in December.

Stock of purchases at German manufacturers fell for the ninth month running in January. Furthermore, amid several reports of delays in the delivery of inputs, the rate of decline in pre-production inventories accelerated to the quickest for a year. Goods producers ramped up their purchasing activity, accordingly, citing efforts to support production levels and ensure future availability of inputs with long lead times.

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