German Factory Output at 27-Month High on Employment ‘Tailwinds’

Germany’s manufacturing output reached the highest level since early 2014 in a survey of purchasing managers this month as the economy was supported by a strong labor market and increasing demand.

A measure of production rose to 56.8 in July -- a 27-month high -- from 55.7 in the previous month, Markit Economics said on Friday. A combined index of manufacturing and services activity also rose to the highest this year. It was at 55.3 in July after a reading of 54.4 in June, the London-based company said on Thursday. Economists had forecast a drop to 53.6.

The report suggests that record-low unemployment is buttressing growth and in Europe’s largest economy even as the U.K., the third-largest destination of German exports, reels from the effects of its vote to exit the European Union.

“Strong tailwinds from a healthy labor market and rising demand are propelling the economy forward, while businesses so far seem to be unaffected by uncertainties around the U.K.’s decision to leave the EU,” said Oliver Kolodseike, an economist at Markit. “The German economy is continuing its uninterrupted growth trend at the start of the second half of 2016.”

Still, Kolodseike warned that the sentiment numbers for the service sector, which dipped to a nine-month low in July, should be seen as a “note of caution.”

Markit’s measure of French private-sector activity rose to 50 -- the level that divides expansion from contraction, the firm said earlier Friday. Economists predict the composite index for the euro area, which is published later this morning, will slow to 52.5 from 53.1.

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