German Manufacturing Looks Strong While UK Slows

PMI for November shows an employment increase in Germany and a decrease in the UK.

For November, German manufacturing employment increased at the second-sharpest rate in six years, according to the Royal Bank of Scotland’s (RBS) Purchasing Managers’ Index (PMI). November’s PMI was 58.3.

The output index was 59.1 as better operating conditions, increased production, improved demand and company expansions all helped to boost employment in manufacturing.

For 2006, the average PMI reading is 57.9, which, if maintained after data for December is released, would be the highest annual average PMI since the survey began in 1996.

The U.S., the European Union and South Asia accounted for most of the new export contracts and strong domestic demand continued. Demand for German-produced consumer goods was also strong.

Average purchasing costs for November increased due to high prices for raw materials such as plastics, metals and packaging components, but the rate of inflation was the lowest since April.

November also marked the eleventh monthly increase for average factory gate prices due to increased input charges, which were often passed on to clients. Strong demand also led manufacturers to raise prices on finished products, raising the output prices index to 53.9.

Quantity of purchase among manufacturers was 59.7, up from October’s 59.5, thanks to the higher production requirements.

In the UK, the November PMI was 52.6, which is below its 2006 average of 53.2, indicating that the current expansion of the sector is slowing.

New orders and foreign sales of UK goods both increased, but the rate of expansion reached a three-month low.

The employment index dipped to 47.6 in November from 50 in October, marking the lowest reading since January.

“The sector is experiencing jobless growth at present. This is most likely due to the surge in costs seen during the first half of the year. Input costs remained elevated in the November survey but should subside in the months ahead as the unwind in energy costs continues,” commented RBS Group Chief Economist Dr. Andrew McLaughlin.

Although new order volumes and increased average factory gate prices led to a rise in prices, the output prices index was 53.8, its lowest level in 6 months.

Raw material prices for metals, plastics, chemicals and paper products increased; however, inflation of purchasing costs was at its lowest level since January.

“It looks like the expansion of the UK manufacturing sector peaked during mid-2006, and is quickly making its way back toward trend-like performance,” McLaughlin added.

To view the German report, click here.

For the UK report, click here.