EMI rises again for the first time in January 2022

PMI at five-month high, buoyed by faster rises in output and new orders +++ Pace of job creation also accelerates as expectations improve +++ Cost inflation slips to nine-month low amid further easing of supply crunch +++

Latest PMI survey data showed an encouraging start to 2022 for the German manufacturing sector, with goods producers reporting faster increases in output, new orders and employment. Although supply chains remained stretched, there was a further easing of pressures on this front, which in turn contributed to a softening of cost inflation to a nine-month low. These developments were reflected in improved confidence among goods producers towards the year-ahead growth outlook. 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 – ticked up for first time in six months in January. The index registered at a five-month high of 59.8, following successive readings of 57.4 in November and December. January saw output growth regain more momentum following a slowdown throughout much of the second half of 2021. The rise in output was the strongest for five months, and coincided with signs of firmer demand and an easing in supply-side constraints. Inflows of new orders at German manufacturers picked up notably in January and, like output, showed the steepest rise since last September. The survey data hinted at the domestic market being the main driver of the upturn, as growth in new export orders improved only slightly from December's 18-month low. Intakes of new work were boosted to some extent by customers bringing forward orders to guard against delays and potential price increases, anecdotal evidence showed. Reports from manufacturers of longer lead times on inputs remained prevalent in January, with panellists citing the influence of a lack of availability of materials and components in the market and pressure on transportation capacity. That said, the incidence of delays fell to the lowest since December 2020, in a further sign of  bottlenecks easing. Accordingly, the rate of input price inflation across the manufacturing sector slipped further from last July's record high to the slowest for nine months. The moderation was only slight, however, with cost pressures remaining elevated by historical standards as surveyed firms widely commented on the influence of higher energy prices. The upturn in demand in January meanwhile allowed more firms to pass on higher costs to customers, leading to a rebound in the rate of factory gate price inflation after it had slowed to a sevenmonth low in December. On the employment front, January saw an acceleration in the rate of job creation at German manufacturers for the second month in a row, taking it to the quickest since last July and one of the highest in the series history since April 1996. Firms often reported taking on new staff to expand operating capacity which, combined with reports of fewer delays on inputs, contributed to a slower rise in backlogs of work. As well as increasing employment, manufacturers also expanded their purchasing activity during the month, citing not only higher output requirements but also attempts to build up buffer stocks of inputs. Pre-production inventories rose markedly and for the fourth month running, albeit with the rate of accumulation easing from December's record high. Lastly, January's survey showed a sustained improvement in manufacturers' expectations towards future activity, with the degree of optimism strengthening for the third straight month to the highest since last June.