As expected (by me anyway), the Markit/BME Germany Manufacturing PMI® shows Germany is back in contraction.

Weaker new order intakes lead to deteriorating manufacturing business conditions in March.

Key Points:

  • Output growth slows to only marginal pace
  • Sharpest fall in new work for three months
  • Cost inflation highest since July 2011

Historical Overview:

Summary:

The seasonally adjusted Markit/BME Germany Purchasing Managers’ Index® (PMI®) dipped back below the neutral 50.0 mark in March, thereby ending two months of marginal improvement. At 48.4, down from 50.2 in February, the index pointed to a moderate deterioration in overall operating conditions, and was the lowest since December 2011. Moreover, March’s PMI reading was six index points lower than the average for 2011 (54.8). The output and new orders components of the headline index have both moderated substantially since their highs at the beginning of last year. By sector, investment goods producers have seen the biggest slowdown compared with the rates of growth registered in early 2011.

March data pointed to a marked reduction in new export orders, extending the current period of decline to nine months. Survey respondents mainly cited softer global trade flows, with weaker trends in exports to China and across the euro area largely offsetting a recent upturn in demand from the USA.

A marked drop in purchasing activity at manufacturers contributed to reduced supply chain pressure and the fastest improvement in vendor performance since July 2009. Average cost burdens nonetheless continued to rise at a robust pace in March, with the rate of inflation reaching its highest in eight months.

Given the complete collapse in the periphery, German manufacturing will eventually plunge hard.

It is illogical to expect Germany can hold up Europe by itself, especially with a simultaneous slowdown in China. For details, please see China Manufacturing PMI™ Decreases at Second-Fastest Rate in Three Years.

US manufacturing appears to be chugging along nicely, at least on a relative basis, but the warmest weather in history and robust car sales led the way. Don’t expect that to last. Headwinds are enormous.

Mike “Mish” Shedlock
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