UK Manufacturing Sector PMI at 15 Year High Even as Margins Squeezed Further

The latest seasonally adjusted CIPS/Markit Manufacturing Purchasing Managers’ Index® (PMI®), was released today.

The headline PMI® provides a single figure indication of operating conditions in the manufacturing sector. The index is calculated using data collected on new orders, production, employment, supplier performance and stocks of purchases.

• Growth of output at 43-month high. New orders rose at steepest pace for six years.
• Employment increased slightly for first time since April 2008. However, some sectors reported ongoing redundancy programmes, particularly the basic metals and mechanical engineering sub-industries.
• Average purchasing costs increased at the fastest rate since September 2008, driven higher by rising commodity prices and compunded by low stock levels at suppliers.
• Vendor performance suffered the sharpest deterioration for 39 months with average charges rising at the fastest pace since October 2008, as companies moved to protect operating margins. However, the rate of increase in selling prices was well below that signalled for costs.

Rob Dobson, Senior Economist at Markit Economics commented:

“The main driver of growth was a surge in new export orders, as improving global market conditions and the ongoing weakness of sterling led to the sharpest rise in foreign demand recorded in at least 14 years.

“The survey therefore raises hopes that the sluggish recovery from recession signalled by GDP data in the final quarter of last year”.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, added:

“Inevitably, though, purchasing managers voiced some notes of caution. The spike in purchasing activity was attributed to inflationary concerns and delivery delays – rather than increased client demand. Also, the highly competitive nature of this still fragile market meant firms shied away from raising their selling prices to a sufficient extent to fully cover cost increases”.

Press Release: Markit Economics [PDF]

Note: The index is a “diffusion index”. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

The CIPS/Markit UK Manufacturing Purchasing Managers’ Index® (PMI®) is a composite index based on five of the individual indexes with the following weights: New Orders – 0.3, Output – 0.25, Employment – 0.2, Suppliers’ Delivery Times – 0.15, Stock of Items Purchased – 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.

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