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German manufacturing growth decelerates in September, service sector growth stays strong

The overall rate of growth in German business activity continued to be solid and private sector employment levels also indicated a further noticeable rise in the month. However, the manufacturing sector saw its momentum slowdown. The IHS Markit Flash manufacturing PMI dropped to a 25-month low of 53.7 in September, down sharply from August’s 55.9. Manufacturing order books were little changed in the month, rising marginally and the least in the current expansionary sequence that started in December 2014. Nevertheless, owing to a steep and accelerated rise in services new business that was the most rapid since June 2011, the overall picture for new orders continued to be one of strong growth.

Meanwhile, latest data showed backlogs of work across Germany’s private sector rising at the softest rate for over one-and-a-half years. Whereas growth of outstanding business at services providers was at a 10-month high, manufacturers saw their first decrease in order book backlogs since January 2015.

On the employment front, the pace of job creation slowed a bit from the near-record high seen in August but continued to be among the most rapid seen since comparable data first became available in January 1998. In the service sector, employment growth rose a bit and was the most rapid in just under 11 years, while the latest rise in manufacturing staffing figures was similarly strong but the least marked since May.

After reaching the most rapid for seven months in August, the pace of inflation in average prices charged by German business weakened a bit in September. The deceleration was driven by a softer rise in service sector output prices, with manufacturing output charges rising at an identical rate to that recorded in August.

Likewise, input cost inflation dropped from the seven-month high seen in August, falling to its softest since May. However, cost pressures continued to be elevated by historical standards throughout both manufacturing and services. Goods producers often cited higher prices paid for energy and steel, while rising labor costs was the main driver in the services economy.

Business confidence in the German private sector continued to be strongly in positive territory in September, in spite of falling to a four-month low. Nevertheless, solid overall optimism masked contrasting trends at the sector level. Services companies reported their most confidence since April, but expectations towards future output among manufacturers dropped sharply in the month to the lowest in nearly four years.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bullish at 53.6799, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -18.8011. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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