Germany: Composite PMI drops in August amid growing supply-side constraints
Private-sector operating conditions continued to improve at a marked, albeit softer, pace in August, with the IHS Markit Composite Purchasing Managers’ Index (PMI) cooling to 60.6 from the all-time high of 62.4 in July. The index remained handsomely above the neutral 50-threshold that separates improving from deteriorating business conditions over the prior month.
The headline retreat chiefly reflected a notable loss of steam in the manufacturing sector. Growing supply-side issues amid anecdotal evidence of material and component shortages weighed on production levels; new orders also took a hit, growing at the softest rate in six months, but still outpaced production. Consequently, goods producers struggled to keep up pace with demand, and backlogs of work continued to rise strongly. Business conditions in the services sectors also increased at a slightly softer pace in August compared to July, this was due to a mild easing in new business growth.
Employment across both sectors rose for the eighth-month running, and at the second-fastest rate on record. Job creation was buoyed by greater demand as well as rosy business confidence towards the outlook for activity; supply constraints, however, drove manufacturing sentiment to its lowest level since October 2020. Turning to prices, inflationary pressures remained elevated as a near-record rise in input costs drove a sharp increase in output prices: Supportive demand dynamics enabled firms to pass on part of the burden to customers.
Phil Smith, associate director at IHS Markit, reiterated that data for the German economy points to a stronger growth reading in the third quarter, adding that:
“This is despite signs of a further slowdown in manufacturing, where production levels continue to be held back by supply bottlenecks and businesses remain under pressure from record cost increases. Services has taken over as the main growth driver, having followed up July’s record expansion with another stellar performance in August, as demand across the sector continues to rebound.”
Phil Smith, associate director at IHS Markit reiterated that data for the Germany economy points to a stronger growth reading in the third quarter, adding:
“This is despite signs of a further slowdown in manufacturing, where production levels continue to be held back by supply bottlenecks and businesses remain under pressure from record cost increases. Services has taken over as the main growth driver, having followed up July’s record expansion with another stellar performance in August, as demand across the sector continues to rebound.”