Industry Continues on Recovery Path Despite Corona Crisis

The seasonally adjusted IHS Markit/BME Purchasing Managers’ Index (PMI) rises to 58.2 points, reaching a 31-month high. It has now been above the growth threshold of 50.0 for over four months, indicating that the economy is on a recovery path.

(London / Escheborn) – Thanks to another strong increase in industrial production, the German economy remained on a growth path in October. However, the current division is evident in the decline of business activity in the services sector, triggered by new restrictions and increasing uncertainty due to the second wave of Corona infections, reports the English financial services provider IHS Markit.

The seasonally adjusted IHS Markit/BME Purchasing Managers’ Index (PMI) rose to 58.2 points from 56.4 in September, reaching a 31-month high. The important leading indicator for the economic situation in the manufacturing industry has now been above the growth threshold of 50.0 for four months. The peak value in October was driven by the strongest increase in new orders since the start of PMI data collection in 1996. According to IHS Markit, the record increase in new orders is evidence that the industry is continuing on a recovery path.

“According to the PMI, the pandemic apparently has so far had little impact on large parts of the industry. Whether this remains the case in light of dramatically rising infection numbers remains to be seen,” emphasized Dr. Silvius Grobosch, Managing Director of the Federal Association for Materials Management, Purchasing and Logistics e.V. (BME), in Eschborn.

“The PMI signals a continued growth path for the industry. Despite the renewed lockdown, the momentum in the industry should remain high in the fourth quarter. There are no restrictions here,” commented Dr. Gertrud R. Traud, Chief Economist of Helaba Landesbank Hessen-Thüringen, in response to the current PMI data. Furthermore, demand from China is currently high again. The German industry should benefit from this. “For the entire year 2020, we expect a decline in Germany’s gross domestic product of 5.4 percent, followed by an increase of five percent in the following year. The industry will be a significant driver,” added the Helaba bank director.

“The purchasing managers’ indices clearly show that the economic recovery is increasingly entering difficult waters. However, it should be noted that the downturn is only occurring in Europe,” said Dr. Ulrich Kater, Chief Economist of DekaBank, to the BME. The USA, China, and many other countries continue to show improved sentiment indicators, and the economic development there is likely to perform better in the coming months, Kater concluded.

Regarding the recent development of the PMI sub-index for purchase prices, Dr. Heinz-Jürgen Büchner, Managing Director of Industrials, Automotive & Services at IKB Deutsche Industriebank AG, told the BME: “During October 2020, the price level of most publicly traded raw materials stabilized. However, the pandemic, with its still expected waves of infection, creates uncertainty. For example, global mine production of copper fell by 0.8 percent by the end of July 2020, while refined production increased by one percent and consumption remained stable. The market overall showed a supply deficit of 255,000 tons. However, we expect a slightly lower deficit for the entire year. Overall, copper prices have potential towards 7,000 US dollars per ton, as some copper mining regions have very high Covid-19 infection rates.”

Overview of the Development of the PMI Sub-Indices:

Production:

In October, manufacturers once again expanded their production. The seasonally adjusted sub-index improved for the umpteenth time compared to the previous month and signaled the third-highest growth rate in the survey’s history (since April 1996). All three sub-sectors of the industry – investment goods, consumer goods, and intermediate goods – recorded significant increases.

Total New Orders

The recent increase in production was mainly due to the again strong increase in new orders. Moreover, the corresponding sub-index improved for the second consecutive month, reaching a new all-time high. This surpassed the previous record from March 2010, during the recovery phase from the global financial crisis. According to survey participants, both domestic and foreign demand increased significantly.

Export Orders

Export orders from manufacturers also rose sharply in the reporting month. The seasonally adjusted sub-index increased slightly compared to September and recorded its highest value in almost three years. Business is noticeably improving, especially in Asia and particularly in China, according to some respondents. Producers of investment goods recorded the largest increase in foreign business. In contrast, a decline was noted in the consumer goods sector, after significant increases were recorded in the previous month.

Employment

Employment shrank again in October, marking an uninterrupted decline for 20 months. After seasonal adjustments, the corresponding sub-index improved slightly to its highest value since February; however, it still signaled a further significant reduction in jobs. The investment goods sector was most affected.

Purchase Prices

After purchase prices in the industry had fallen for 17 consecutive months, a slight increase was recorded in October. According to survey participants, the increase was mainly due to shortages of certain materials. Electronics, some metals, and metal products have become more expensive, among others.

Sales Prices

Sales prices showed a similar trend, rising for the first time since the first half of 2019 – albeit only slightly. As some respondents reported, the renewed demand allowed companies to raise their prices. While manufacturers of consumer and intermediate goods recorded slight price increases, a decline was noted in the investment goods sector.

Business Expectations

The business outlook in the industry remained positive in October. Many of the surveyed managers are confident that the coronavirus pandemic will eventually come to an end and that demand will significantly increase again as a result. However, the corresponding sub-index weakened slightly for the first time in seven months after reaching a 32-month high in September.

About the PMI

The IHS Markit/BME Purchasing Managers’ Index (PMI) provides a general overview of the economic situation in the German industry. It is a snapshot of the business situation in the manufacturing sector – calculated from the sub-indices for new orders, production, employment, delivery times, and raw material inventories. The index has been published since 1996 under the auspices of the BME. It is produced by the provider of corporate, financial, and economic information IHS Markit, headquartered in London, and is based on a survey of 500 purchasing managers and executives in the manufacturing industry in Germany (representative of the German economy by sector, size, and region). The PMI is modeled after the US Purchasing Managers’ Index (Markit U.S.-PMI).

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Image: © IHS Markit