According to EMI Index, Supply Issues Hinder Stronger Growth

Current IHS Markit/BME Purchasing Managers’ Index (EMI) shows: Slight production increases, delivery times extend less sharply +++ Purchasing/selling prices rise significantly, but inflation rates weaken +++ Improved business outlook leads to stronger employment growth +++

(Eschborn) The EMI signals: Full order books are likely to give many manufacturers confidence in their growth prospects for the new year. However, much still depends on an improvement in the delivery situation.

Ongoing supply bottlenecks have continued to trouble the industrial sector in Germany even in the last month of the past year. This is shown by the seasonally adjusted IHS Markit/BME Purchasing Managers’ Index (EMI). With 57.4 points, the important economic early indicator for the largest economy in Europe remained unchanged in December compared to the previous month, thus at its lowest level since January 2021.

However, delays in lead times fell to their lowest level since January 2021, leading to a slightly higher production growth rate. Nevertheless, the conditions for material procurement remain as difficult as rarely before in the history of the EMI survey, which is why numerous manufacturers continued to push for the buildup of safety stocks.

“The ongoing shortage of raw materials and production materials continues to burden industrial production in Germany,” emphasizes Gundula Ullah, Chairwoman of the Federal Association for Materials Management, Purchasing and Logistics e.V. (BME). Looking at the EMI sub-index for production, which was able to increase marginally for the second consecutive month, there are first cautious signs of a possible easing. However, much still depends on an improvement in the still tense delivery situation.

New Year – Old Problems

“New year, but old issues: supply problems and rising prices. The mood of companies in the German industry suffers as a result. But now companies must also prepare for demographic change,” comments Dr. Gertrud R. Traud, Chief Economist of Helaba Landesbank Hessen-Thüringen, on the current EMI data at BME’s request. Those companies that expect fuller order books again this year are already hiring. “First come, first served. If at some point the issue of Corona should no longer play a major role, the structural problem of the shortage of skilled workers will hit hard. Then the problem of material shortages will be replaced by personnel shortages,” adds the Helaba bank director in her statement for BME.

“Current surveys indicate that the burdens on companies should concentrate on the winter half-year of 2021/22. All signs currently point to a contraction of gross domestic product during this time,” says Dr. Ulrich Kater, Chief Economist of DekaBank, to BME. After that, one may hope for an initial easing of bottlenecks, a digestion of the energy price shock, and a weather-related subsiding of the Corona waves, so that the summer half-year will bring a noticeable recovery.

Regarding the recent development of the EMI sub-index for purchasing prices, Dr. Heinz-Jürgen Büchner, Managing Director of Industrials, Automotive & Services at IKB Deutsche Industriebank AG, provides the following assessment to BME: “The start of 2022 is still characterized by a tight market supply for many raw materials. The year-end quotations for listed non-ferrous metals remained unchanged at a high level. Stocks of aluminum and nickel have continued to decline, which is likely to keep prices high in the coming months. Crude oil and natural gas also remain at a high price level. This continues to burden the industry in the first half of the year.”

Overview of the Development of EMI Sub-Indices:

Production: As in previous months, the production rate was also subdued in December 2021. Although the seasonally adjusted sub-index improved slightly, it remained close to the 16-month low of October, signaling only moderate growth. Although there were first signs of easing, production in many places still suffers from material shortages. In the consumer goods sector, the reintroduced restrictions against Covid-19 provided additional headwinds.

Order Intake: The increase in order intake was as low as it has been since the beginning of the upswing in July 2020. Supply bottlenecks on the part of customers and the resulting reduced production were often cited by respondents as reasons for the weak increases. Where an increase was recorded, it was usually due to the still intact demand in this area. Additionally, there were reports that customers consciously ordered more to prepare for future supply problems.

Export Order Intake: New orders from abroad rose in December 2021 as slightly as they have in 18 months. There were opposing trends among the sub-sectors. While manufacturers of capital goods recorded strong increases, the consumer goods sector saw a decline. The intermediate goods sector ranked in between and recorded a slight increase.

Annual Outlook: Manufacturers’ confidence has further brightened towards the end of the year. The corresponding sub-index improved again from the 14-month low in October and climbed to the highest level since August. However, it still recorded significantly below its average for 2021. Overall, most purchasing managers expect that demand will continue to recover over the next twelve months and that problems in the supply chains will ease.

Purchasing Prices: Cost pressure in the industry remains high. Although the seasonally adjusted sub-index fell slightly to an eight-month low, it still recorded higher than ever before in the history of the EMI survey prior to May 2020. In particular, the influence of higher energy and transport costs was cited by respondents as a reason for the recent increase. Additionally, a whole range of raw materials, components (especially electronics, metals, and plastics), and packaging materials also became more expensive.

Selling Prices: Higher purchasing prices again led many manufacturers to raise their selling prices in December 2021. Although the inflation rate remained high compared to historical data, it fell significantly and dropped from the record high in November to the lowest level in seven months. In all three sub-areas covered by the survey, less strong increases were recorded.

About the EMI: The IHS Markit/BME Purchasing Managers’ Index (EMI) provides a general overview of the economic situation in the German industry. It is a snapshot of the business situation in the manufacturing sector and a weighted average of the measured values for new orders, production, employment, delivery times, and raw material inventories. The index has been published since 1996 under the auspices of 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 industry, size, and region). The EMI is modeled after the US Purchasing Managers’ Index (Markit U.S.-PMI).

Photo: © BME/Michal Jarmoluk – pixabay.com