Aug PMI: Manufacturing Remains Supply Constrained

German August flash PMIs came in mixed, with services beating expectations at 61.5 (vs 61.0 expected and 61.8 prior), but manufacturing decelerating more quickly than expected at 62.7 (vs 65.0 expected and 65.9 prior).

• These were multi-month lows (2 months for services, 6 months for manufacturing) but still strong readings, with services down from a record-high in July and one of the highest in series history.
• The manufacturing miss will get more attention, and the underlying explanation appears to be rising supply chain constraints and not weaker demand per se.
• From the IHS Markit report: "a number of reports from goods producers of material and component shortages weighing on factory production volumes. Manufacturing order book volumes were also reportedly impacted, growing at the slowest rate for six months but one that nevertheless remained faster than that of output and was strong by historical standards".
• In this context, manufacturing firms "struggled to keep pace with demand" and with input inflation rising, continued to raise prices. They also hired aggressively to keep up with orders (as with their service sector counterparts).

Source: IHS Markit