In the middle of the fourth quarter of 2024, the German manufacturing sector remained in contraction territory, according to the latest HCOB ® Purchasing Managers’ Index survey and declines in both production and new orders fell for the second consecutive month but remained sharp, while there were faster declines in employment, purchasing activity and inventories.
At the same time, weak demand and competitive pressures have led to further declines in both input costs and production prices.
with the latter falling at the fastest rates over the past fifteen years.
The business outlook was slightly higher for the second month in a row. However, the background of political and economic uncertainty means that confidence remains low by historical standards.
The HCOB Germany manufacturing PMI is a measure of overall working conditions derived from metrics of new orders, production, employment, supplier delivery times and procurement inventories. Its latest reading was at 43.0 in November, unchanged from that recorded in October and well below the 50.0 threshold that separates growth from contraction.
The rate of decline in manufacturing output fell to its weakest level since June. However, it was still sharp and slightly faster than the average recorded during the current series of contraction in output that extends to May 2023.
German manufacturers cut production as they continued to struggle to win new business. They reported demand headwinds from a range of factors including the ongoing stockpile reduction cycle, political and geopolitical uncertainty, and a generally difficult economic climate. New orders fell sharply, albeit at the slowest rate in six months. The recent decline in export sales has been slightly faster than that seen in October, led by a particularly sharp decline in the investment goods sector.
Employment reviewed in German Final Manufacturing PMI amid falling demand
There remained a clear lack of pressure on capacity across the manufacturing sector, as evidenced by a sharp (albeit slower) decline in backlogs. As such, the workforce was shrinked for the seventeenth consecutive month during November.
The rate of decline in factory employment was the second fastest since the initial phase of the pandemic in 2020, after the rate recorded in September. Commodity producers also made deeper reductions in purchasing activity and inventory levels during the penultimate month of the year.
The decline in post-production inventories was the fastest in more than three years.
while input inventories fell at one of the fastest rates since 2009. Companies reported reduced inventories not only due to lower demand and production requirements.
but also to save costs and due to improved material availability.
Delivery times for inputs accelerated for the twenty-fifth consecutive month in November. The rate of improvement in supplier performance was the fastest since August but remains modest overall.
Amid reports of strong competition among suppliers, November saw a further drop in average input prices faced by German manufacturers. The rate of cost decline was strong but the slowest in three months. On the other hand, factory gate fees have fallen to the maximum since May and one of the fastest rates since 2009.
Finally, the November survey showed a rise in business confidence about future production.
with sentiment turning positive for the first time in three months. Some companies reported hopes of an economic improvement after next year’s election. However, growth expectations were well below the long-term average.
Flash data was calculated from 90% of final responses. Since January 2006, the average difference between the final and flash manufacturing PMI values has been 0.0 (0.3 in absolute terms).
The Importance of the German Final Manufacturing PMI
The German Euro Final Manufacturing PMI is a key economic indicator that reflects the health of the manufacturing sector in Germany, the largest economy in Europe. Here are some key points about this indicator:
Measurement: The PMI is derived from a survey of purchasing managers in the manufacturing sector. It assesses various factors such as production levels, new orders, supplier delivery and staffing.
Scale: The index is measured from 0 to 100. A reading above 50 indicates expansion in the manufacturing sector, while a reading below 50 indicates contraction.
Important: Economists and investors are watching Germany’s final manufacturing PMI closely as it provides insights into the economic activity and health of the manufacturing industry.
which contributes significantly to Germany’s GDP.
Market impact: Changes in the PMI can affect financial markets.
especially the euro and German bonds, as it reflects economic trends. A stronger-than-expected PMI could boost confidence, while a weaker PMI could lead to concerns about an economic slowdown.
Adjustments: The final PMI is published after a quick preliminary estimate, which is released earlier in the month. The final version includes more complete data than the survey, providing a more accurate picture of manufacturing conditions.
Trends: Analysts often look for PMI trends over time to gauge the overall direction of the manufacturing sector and potential shifts in economic policy or market conditions.
In short, the final purchasing managers’ index of the German manufacturing sector in euros is a crucial indicator for assessing the performance of Germany’s manufacturing sector and has significant implications for the broader eurozone economy. A stronger-than-expected PMI could boost confidence, while a weaker PMI could lead to concerns about an economic slowdown.
