PMI: New order growth hits six-month high in February

+++ Sharp rise in backlogs as growth in new orders outstrips output Factory cost inflation slips further from recent highs Lowest incidence of supply delays since November 2020 +++

A steep rise in new orders drove a sustained expansion of Germany's manufacturing sector in February, latest PMI® survey data showed. Growth of output remained strong but was constrained somewhat by a temporary decline in staff availability owing to COVID-related absences. Elsewhere, there were further promising signs on the supply-side in February, as the incidence of delays in the receipt of inputs fell to the lowest since November 2020. This was in turn reflected in a further moderation in factory cost inflation from the record highs in the second half of last year. 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 – registered 58.4 in February. This was firmly above the 50.0 mark separating growth from contraction, but down slightly from January's fivemonth high of 59.8. Four of the five sub-components impacted a negative directional influence. The only exception was new orders, the rate of growth of which accelerated for the second month in a row to the highest since last August. As well as signalling stronger domestic demand, the survey also showed a sustained upturn in new export orders, which rose to the greatest extent for six months amid reports of sales growth across the US, Italy and other parts of southern Europe. February also saw a further robust increase in production across Germany's manufacturing sector. But in contrast to new orders, the rate of output growth slowed since February, with a number of surveyed firms indicating that staff absences linked to COVID had weighed on capacity during the month. With the rate of expansion in new orders outstripping that of production, February saw a sharp and accelerated increase in backlogs of work – the most marked for four months. Stocks of finished goods were meanwhile depleted slightly, ending a three-month sequence of accumulation. Pre-production inventories, on the other hand, continued to rise, as manufacturers maintained their recent efforts to build up buffer stocks of inputs and mitigate the risks of supply delays. This was reflected in a further steep increase in purchasing activity during the month. The latest rise in stocks of purchases was the weakest for four months, however. Supply chains remained stretched in February, with surveyed firms reporting longer lead times on inputs due to shortages of materials and components in the market, as well as pressure on transport capacity. That said, the incidence of delays fell for the eighth time in the past nine months to the lowest overall since November 2020. The further easing of supply bottlenecks coincided with a sustained slowdown in the rate of input price inflation faced by manufacturers. Although still elevated by historical standards, the rate of increase in input prices was at an 11-month low in February. Materials – particularly metals and plastics – energy and transportation were cited by surveyed businesses as sources of cost pressure. Average prices charged by goods producers continued to rise sharply midway through the first quarter. The rate of inflation ticked down slightly but was still among the quickest in the series history (since September 2002 for this series) Manufacturers reported strong optimism towards the outlook, and as such continued to expand workforce numbers at a rapid pace. Expectations did, however, fall slightly and for the first time in four months, with concerns towards the Russia-Ukraine tensions being a factor.