The Germany Manufacturing Purchasing Managers' Index (PMI) slipped below the neutral 50 threshold in September. It came at 49.9 in September, down from 51.4 in August, the headline PMI signalled stagnation in Germany's goods-producing sector, thereby ending a 14-month sequence of continuous growth. The headline index reading followed an earlier 'flash' estimate of 50.3.
Weighing on the headline PMI in September was a decline in total new work. German manufacturers reported the first drop in order intakes since June 2013, with the pace of contraction the quickest since late 2012.
New work from foreign markets, meanwhile, rose marginally, albeit at the slowest pace in the current 14-month spell of growth. Survey participants attributed the weaker expansion to the Russian sanctions and subdued growth in main export destinations (e.g. China).
Despite the drop in total new orders, manufacturers were able to increase their production levels slightly. That said, the pace of expansion was the slowest in 15 months and marginal overall. Some panellists linked the rise in output to the processing of backlogs. Indeed, the latest survey data signalled a slight decline in the level of work outstanding.
The modest increase in output led to a stabilization of the labour market in September, with companies reporting unchanged workforce numbers since August, thereby ending a three-month stretch of job shedding. Rising production was also the main reason for a marginal increase in purchasing activity.
A further fall in input costs was signalled by German manufacturers in September, with companies commenting on lower prices for energy and some raw materials. The rate at which costs declined was the sharpest in four months. In response to lower input costs and increased market competition, companies reduced their selling prices in September. Charges fell for the first time since March, albeit marginally overall.
German manufacturers were relatively cautious about their stock policy in September, with stocks of purchases falling at the strongest rate in nine months and stocks of finished goods rising only fractionally. The rise in post-production inventories was linked by some panellists to excess production.
Oliver Kolodseike, economist at Markit and author of the report said, "September's manufacturing PMI results paint a worrying picture of the health of Germany's goods-producing sector. The headline PMI fell to its lowest level in 15 months, heavily weighed down by the sharpest drop in new orders since the end of 2012.''
''Surveyed companies reported that a weakening economic environment, Russian sanctions and subdued growth in key export destinations were reasons behind the disappointing reading.''
''Moreover, deflationary pressures persisted into September, with both input and output prices falling since the previous month. This was the first time since March that both price indices registered below the neutral 50 mark.''
"On a positive note, September marked an end to a three-month period of job cuts, and despite declining order intakes, companies reported further (albeit weaker) production growth and a marginal rise in buying activity."
