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German manufacturing PMI posts survey-record high of 61.5

Markit Research

April data indicated that the German manufacturing sector started the second quarter with the strongest improvement in overall operating conditions since the survey began in April 1996. This was highlighted by a rise in the final Markit/BME Germany Purchasing Managers’ Index (PMI) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – from 60.2 in March to 61.5. The earlier flash figure for April was 61.3.

The final PMI reading surpassed the previous record high registered in April 2000 and signaled that the recovery in the manufacturing economy continued to gain traction. All five components had a positive influence on the PMI in April, though the rise in the headline figure was primarily driven by a survey-record expansion of production.

Output levels in the German manufacturing sector have now increased for ten consecutive months. The latest improvement reflected strong rises in all three market groups monitored by the survey. Investment goods producers posted the fastest rate of expansion, as has been the case throughout much of 2010 so far. Anecdotal evidence from survey respondents suggested that production was supported by higher global demand and, in some cases, efforts to rebuild stock from the extreme lows of 2009.

A steep rise in new business intakes highlighted a continued rebound in client demand in April, although the pace of growth eased slightly since March. Stronger export demand underpinned the recovery, with firms commenting on a particularly marked improvement in new business from Asia. Manufacturers also commented on encouraging signs that the upturn in new export orders had broadened to the US and Europe at the start of the second quarter.

Higher production requirements meant that companies continued to reappraise their staffing levels and input purchasing in April. Job creation was recorded for the first time since September 2008 and there were reports that short-time working had been scaled back. Meanwhile, purchasing activity increased at a survey-record pace in April as firms responded to rising output at their plants and the need to rebuild stocks of inputs. Latest data pointed to a rise in pre-production inventories for the first time since September 2008.

Raw material stock rebuilding was partly constrained by longer delivery times from vendors. Anecdotal evidence suggested that capacity and inventory cutbacks amongst suppliers had yet to be fully reversed, resulting in a survey-record deterioration of vendor performance. There were also sporadic reports of delivery delays resulting from recent air transport restrictions in Europe.

Supply chain pressures and stronger global demand for raw materials led to another marked rise in input costs in April, with the rate of inflation the steepest since July 2008. Manufacturers widely commented on higher steel prices and increased costs for oil-based products. This contributed to a third straight rise in output charges and the fastest rate of inflation since September 2008.

Commenting on the final Markit/BME Germany Manufacturing PMI survey data, Tim Moore, economist at Markit, said: “April’s PMI figures provide reassurance that German manufacturing output continues to rise strongly from the extreme lows seen last year. A sustained resurgence in demand has given firms the confidence to scale back short-time working and react quickly to higher production requirements. However, the manufacturing recovery has not been all plain sailing, as supply chain pressures and raw material price rises continue to make their presence felt. Increased cost inflation presents a difficult crosswind for the sector and there are signs that some firms have started to respond by raising charges at the factory gate.” 

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