German factory activity expanded modestly in June as output growth ticked up and new orders rebounded, according to a survey by S&P Global.

The S&P Global final Purchasing Managers’ Index (PMI) for German manufacturing rose to 50.3 in June from 50.1 the month before, coming in slightly above an earlier preliminary reading of 50.0. A reading above 50.0 indicates growth, while below that figure signals contraction.

Output and New Orders

Output rose for a sixth straight month in June, with manufacturers citing lower backlogs and greater inflows of new work. Anecdotally, the new orders were related to the defence and technology sectors, as well as an interest in building up buffer stock, according to the survey.

Phil Smith, economics associate director at S&P Global Market Intelligence, said that companies are still relying partly on backlogged orders to support output, which in the long term is not sustainable. However, he noted that new orders returned to growth in June, albeit rising only marginally.

Smith also highlighted the noticeable easing of input cost inflation from May’s near four-year high, as the drop in oil prices has started to filter through. Factory gate price inflation slowed to a three-month low.

Outlook

The direction of travel of prices in the coming months is clearly dependent on developments in the Middle East, though some lagging inflationary pressures can be expected to remain in the system regardless, according to Smith.

Supplier delays also eased to their lowest in four months, though they remained elevated. Manufacturers’ expectations for output over the next 12 months improved slightly from April’s recent low, but remained below the long-run average as the Middle East conflict, high costs and market uncertainty continue to weigh on sentiment.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.