BERLIN (Reuters) - Strong demand kept German factories humming in May even as supply bottlenecks and high material costs held back the sector, a survey showed on Tuesday.
IHS Markit's Final Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the economy, reached 64.4, below March's record high 66.6 but up from a flash reading of 64.0. The index stood at 66.2 in April.
Factories in Europe's biggest economy have been humming along during the pandemic almost undisturbed by lockdowns that have impacted the services sector. Activity accelerated early this year on strong demand from the United States and China.
But supply shortages and rising costs pose a growing threat, the survey compilers said.
"The disruption from supply shortages has continued to spread, with now almost four-in-five manufacturers reporting increased lead times on inputs and a growing number also citing an impact on output and new orders due to forced downtime," said Phil Smith, principal economist at IHS Markit.
"The disruption to supply comes hand in hand with a further surge in cost pressures, with 90% of manufacturers – far more than ever before in the survey's 25-year history – reporting increased input prices in May," he added.
"Strong demand fundamentals mean that manufacturers are able to pass on some of the burden of higher costs through unprecedented price increases of their own."
The survey also found that activity expectations for the year ahead remained close to record high levels and manufacturers were hiring at a faster pace to meet rising demand.