Germany's manufacturing sector in July 2025 showed signs of resilience, though momentum clearly softened. The manufacturing PMI nudged up to 49.1, a 35-month high, yet it still signals contraction (below 50). Output grew for the fifth consecutive month, but the rise was the weakest since March, reflecting slower gains in new orders and export sales.

Encouragingly, job cuts eased significantly, with employment falling at the slowest pace in nearly two years. Optimism among manufacturers remained above the long-run average, driven by hopes for new product launches and improved economic conditions, although confidence dipped slightly from June's peak.

Price dynamics suggest deflationary pressures are persisting. While input costs continued to decline, helped by supplier negotiations and a strong euro, factory gate prices dropped more sharply, the fastest rate in five months. This points to ongoing competitive pressures and weak pricing power.

Supply chains showed stability, with the smallest improvement in delivery times in 18 months. Meanwhile, producers marginally increased purchasing activity, yet continued drawing on inventories, particularly finished goods. Indeed, Germany's manufacturing recovery appears tentative: underpinned by steady, albeit slowing, demand, cautious optimism, and cost pressures that are being managed through aggressive pricing strategies.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 500 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The S&P Global PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.