PMI: Supply bottlenecks slow down production

Input shortages hold back output and, to a lesser extent, new orders +++ Rising energy costs help drive new record increase in output prices +++ Business expectations improve for first time in five months

November saw German manufacturers continue to struggle to increase production volumes amid ongoing supply-side constraints, latest PMI survey showed. Rising costs also remained a key challenge, and led to another record increase in factory gate charges. Nevertheless, expectations towards future output improved for the first time in five months, albeit with growth prospects often contingent on a catch-up in supply. 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 – slipped to 57.4 in November, down from 57.8 in October and the lowest in ten months. The survey's measure of output pointed to a weak rate of growth, and one that was littlechanged from the 16-month low recorded in October. As has been the case in recent months, there were numerous reports from surveyed businesses of production levels being constrained by shortages of materials and parts. New orders were also somewhat affected by supply bottlenecks, according to panellists. Still, total inflows of new work continued to outpace output, leading to a further increase in backlogs of work, and even rose at a slightly faster rate than in October (although one that was still the secondslowest in the past 17 months). New export orders, on the other hand, increased at a softer rate. Latest data indicated that supply issues remained prevalent. 59% of surveyed businesses reported longer lead times on inputs, compared with a long-run average of around 16%. The incidence of delays was lower than in October (66%), however. Concerns about supply led manufacturers to purchase more inputs where possible. The rate of growth in purchasing activity continued to far exceed that of output and accelerated to a three-month high. Reflecting the persistent over-purchasing of inputs by manufacturers, stock of preproduction goods rose for the second month in a row in November. Furthermore, the rate of accumulation accelerated to a marked pace that was the quickest in the survey's history stretching back to April 1996. Post-production inventories also increased – albeit marginally – to end a 17-month sequence of decline. Strong competition for inputs, combined with higher energy costs, continued to put upward pressure manufacturers' operating expenses during November. The overall rate of input price inflation showed littlechange from the month before and thereby remained among the quickest seen in the series history.+ Goods producers responded to the squeeze on margins by increasing their own prices during November. Moreover, output charge inflation accelerated to a new record high, the third in the past five months after those recorded in July and October. Encouragingly, goods producers were slightly more optimistic about the yearahead outlook in November. After having eased in each of the previous four months from a series peak in June, expectations recovered somewhat to the highest since August. The level of employment across Germany's manufacturing sector continued to rise during November as firms sought to expand operating capacity. The rate of job creation was solid but softened to a nine-month low, with some panellists reporting difficulty filling vacancies.