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Manufacturing PMI in Germany hits 15-month low in Germany

Staff Writer | June 7, 2018
May saw a further slowdown in the pace of growth of Germany’s manufacturing sector, with output, new orders and employment all rising at a weaker rate.
Germany manufacturing
Germany   Business confidence was also found to have deteriorated
Business confidence was also found to have deteriorated, with expectations towards future output the lowest for over two-and-a-half years.

Rising oil prices and ongoing capacity constraints in supply chains meanwhile added further pressure on manufacturers by way of an acceleration in input cost inflation.

The headline IHS Markit/BME Germany Manufacturing PMI – a single-figure snapshot of the performance of the manufacturing economy – registered 56.9 in May, down from 58.1 in April.

Although still well above the 50.0 no-change threshold, and therefore indicative of a robust overall rate of expansion, the latest reading was the lowest seen for 15 months and well below last December’s recent peak (63.3).

The weaker headline PMI reading was partly a reflection of slower growth in production levels.

Output rose solidly in May, but having eased for the fourth time in the past five months the pace of expansion was the lowest seen since November 2016.

By industry group, the data showed a further steep rise in the production of investment goods; however, makers of consumer and intermediate goods recorded notable slowdowns, with the former registering only a modest rise in output that was the weakest in more than two years.

The slower increase in production was in line with the trend recorded for new orders, which likewise continued to rise at a solid rate by historical standards, but one that was the weakest for 21 months.

The export component of new orders, however, showed a much steeper slowdown than the total measure, with sales to non-domestic based clients rising only modestly and at the slowest pace in two years.

On the employment front, May data indicated a further solid rise in factory workforce numbers, despite the pace of job creation having moderated to a 15-month low.

The survey continued to find evidence of pressure on manufacturers’ production capacity, underlined by a further (albeit slower) increase in the level of outstanding orders.

Supply chains also remained stretched during May, with manufacturers facing a further substantial increase in average lead times on purchases.

That said, the extent of the deterioration in vendor performance was the least marked for nine months amid a more moderate rate of growth in goods producers’ buying levels.

Suppliers continued to enjoy strong pricing power thanks to high demand and shortages, contributing to a further sharp increase in input costs in the sector.

Furthermore, rising oil prices helped lift the rate of cost inflation to the highest since February.

Manufacturers’ output prices, on the other hand, rose at the slowest rate for seven months.

Signs of slowing orders weighed on business confidence in May.

Although still positive overall, expectations towards output over the next 12 months were the lowest since October 2015.