German private sector output signalled a continuation of the ongoing expansion in September. The Markit Flash Germany Composite Output Index rose slightly to 54 in September from 53.7 in August. The current period of growth now stretches to 17 months and surveyed companies generally linked this to increased order intakes.
However, the gap between manufacturing and services widened further in September. Production growth in the goods-producing sector slowed to a 15-month low, while service sector output rose at a slightly faster pace compared to August.
As has been the case since July 2013, the volume of incoming new business placed with German private sector companies rose during September, but the rate of increase eased for the fourth month running and was the weakest in one year. Slower growth was largely attributed to the manufacturing sector, where new orders contracted for the first time since June last year amid reports of a weakening economic environment.
Despite weaker new order growth, private sector staffing levels rose further in September, with the rate of job creation accelerating marginally since August. Employment levels have risen continuously since November last year.
On the price front, inflationary pressures intensified marginally in September, with both input and output prices increasing at slightly sharper rates. The rise in input prices was centred around the service sector, as manufacturers recorded an accelerated drop in costs. Survey respondents linked inflation to higher staff costs.
Meanwhile, German manufacturers were cautious about their stock policy in September, as highlighted by a fall in stocks of purchases. Nevertheless, companies increased their buying activity in response to higher production requirements. German service providers signalled pessimism with regards to their business expectations in September, for the first time since November 2012.
Oliver Kolodseike, economist at Markit and author of the Flash Germany PMI said, "September's flash PMI results paint a mixed picture of the health of the German economy at the end of the third quarter. Total private sector output continued to rise at an above average rate and employment growth picked up again, attributed in both cases to a strong service sector. However, new order growth slowed for a fourth month running and was the weakest in one year, suggesting that activity growth might slow in the near-term."
"The introduction of a national minimum wage in January 2015 meanwhile weighed on service sector sentiment, with business expectations the lowest in nearly two years."
"Moreover, recently weak manufacturing data have become one of the most conspicuous features of the fragility of a broad-based recovery. Production growth slowed further and new orders contracted for the first time in well over a year amid reports of a weakening economic environment. It remains to be seen if Germany's goods-producing sector is in the midst of a slowdown or whether recent poor data present just a temporary soft patch."
