IHS Markit Germany Construction PMI®: Construction Sector Returns to Growth in November

Amid Accelerating Inflows of New Work

IHS Markit Germany Construction PMI®:  Construction Sector Returns to Growth in November

Key findings:

  • Renewed rises in commercial and housing activity
  • New order growth accelerates to strongest in nine months
  • Input price inflation ticks up to 13-month high

Latest PMI® data showed a return to growth of Germany's construction sector in November, following the first drop in building activity for seven months in October.   Supporting the upturn was ......

..... a pick-up in the inflow of new orders, which accelerated to the highest since February.   Less positively, however, the rate of input price inflation reached a 13-month high amid reports of rising transport costs.

The headline seasonally adjusted Germany Construction Purchasing Managers’ Index® (PMI®) ticked up to 51.3 in November, moving back inside growth territory following a reading of 49.8 in October.   However, although representing an improvement in performance, the latest figure was still only indicative of a modest rate of growth overall, and one that remained below its year-to-date average (51.8) and well down on its 2017 trend level (54.3).

Behind the rebound in total industry activity in November were renewed increases in homebuilding and commercial construction work.   The latter saw the slightly steeper rise, though in both cases the rate of growth was only moderate. In a reversal of the situation in October, civil engineering was the weakest performing area of the sector, seeing activity levels fall back after a slight gain the month before.

Rising inflows of new orders helped support the overall increase in industry activity in November, with the latest data extending the current sequence of order book growth to three months.   Moreover, the rate of expansion reached its highest since February.

Upturns in output and new orders were accompanied by a pick-up in the pace of job creation across the construction sector in November.   That said, the rate of employment growth was still the second-weakest seen in the past twoand-a-half years.   It was a similar picture for constructors' buying levels, which returned to growth but rose only slightly overall.

November's survey showed the continuation of strong pressure on supply chains, with building companies facing another marked increase in average lead times on materials and products.   There were some reports linking delivery delays to a lack of available freight capacity.

Average prices paid for inputs meanwhile rose sharply during the month.   The rate of inflation was at a 13-month high.   A number of surveyed businesses commented on the influence of rising transport costs, and in particular the impact of new road toll charges.   Adding to cost pressures, rates charged by sub-contractors rose steeply and to the greatest extent since May.

Business confidence towards the outlook for activity over the next 12 months improved slightly in November, although the degree of optimism was subdued relative to the trend over the past three years.   Some constructors raised concerns over a slowdown in the automotive sector.

Phil Smith, Principal Economist at IHS Markit, which compiles the survey, said, “A further boost to construction order books helped the sector get back on track in November.   Output rebounded following a rare decrease in October, with growth centred on the commercial and housing sectors.   The one area of weakness was civil engineering, which was unable to build on the rise in activity seen at the beginning of the fourth quarter and has now gone over a year without back-to-back monthly increases in output.

"Although there was an improvement in most of the survey indicators from the lows seen in October, the rates of growth signalled were generally well below the levels seen at the start of the year and during 2017.   The scale of the latest increases in employment and purchasing levels were only relatively modest, which in part reflected some uncertainty among constructors regarding the outlook for activity.

"Constructors continued to report strong pressure on the cost front, with the survey highlighting sharp and accelerated increases in both average purchase prices and rates charged by sub-contractors."

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