German factory sector catches breath in October after tough September

Berlin — The downturn in Germany’s manufacturing sector eased somewhat in October as output, new orders and employment all slowed their rates of decline after the previous month saw the fastest contraction in a year, a survey showed on Monday.

The HCOB Germany Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 43.0 in October from 40.6 in September, its highest level since July but still far below the 50-point mark that separates contraction from growth.

The final reading is slightly above a preliminary one for 42.6.

“There are signs that an economic trough may have been reached,” said Jonas Feldhusen, junior economist at Hamburg Commercial Bank. “However, caution is required when interpreting the values, as this is just a one-month improvement after all.”

Production saw a sharp decline in October, which while not as deep as the month before, remained faster than average over the current 18-month sequence of contraction, the survey said.

Feldhusen highlighted a considerably less severe fall in new work as a sign of possible stabilisation in the coming months.

Of particular concern, said Feldhusen, is the issue of job cuts, as workforce retrenchment slowed only slightly from September’s steepest contraction in more than four years.

“The issue of job cuts is becoming an increasingly acute one, not only at Volkswagen, where three plant closures and extensive layoffs are up for discussion, but across the entire labour market,” said Feldhusen.

Business confidence was still downbeat but rose slightly from the recent low, with manufacturers citing economic and political uncertainty, as well as concerns for the automotive and constructors sectors, as weighing on their expectations.

Export sales also fell at their slowest rate for five months, though they remain low by historical standards.

Reuters