November data from CIPS/Markit indicated that the recovery in the UK manufacturing sector continued. Levels of output and new orders rose further and the rate of job losses eased to its slowest for one-and-a-half years. However, the data signals that recent trends in manufacturing should still be viewed in the context of the unprecedented declines in the levels of most variables during the height of the recession and there are already signs that the rebound in growth may be nearing its peak.
The seasonally adjusted CIPS/Markit Purchasing Managers’ Index (PMI) posted a level of 51.8 in November, down slightly from a revised figure of 53.4 in October. The PMI has registered a reading above the neutral mark of 50.0 in four out of the past five months. 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.
Output rose for the sixth consecutive month in November, as market conditions continued to improve. Gains in production were broad-based across the consumer and intermediate goods sectors, while output at investment goods producers showed little change for the second month in a row. SMEs and large-sized enterprises both reported growth.
November data indicated that total new orders rose for the fifth successive month, with gains recorded in both the domestic and export markets. New export business rose at the fastest pace for almost two years, reflecting an increase in new work from clients in mainland Europe, the US and Asia. There were reports that the weak sterling exchange rate was boosting competitiveness overseas.
However, there were signs that growth of the manufacturing sector may be nearing its peak. Rates of expansion in output and new orders were slower than October’s highs, and the cyclically sensitive orders-to-inventory ratio fell to an eight-month low.
Manufacturing employment declined for the nineteenth month running in November. Where a reduction was reported, this was attributed to ongoing redundancy, cost-minimisation and efficiency programmes. However, having eased through much of 2009-to-date, the rate of job losses was the slowest since May last year.
Higher commodity prices led to a further increase in average purchasing costs in November. Companies reported higher prices for energy, metals, oil and plastics. Output charges rose for the first time in ten months, reflecting increased input costs and efforts to protect margins. However, competitive pressures meant that the rate of inflation was only slight.
Purchasing activity rose for the second successive month in November, and at the fastest rate since December 2007. However, this was insufficient to prevent a further sharp reduction in holdings of raw materials. Stocks of finished products also fell in November, but at a substantially reduced pace.
Rob Dobson, Senior Economist at Markit Economics said:“The UK Manufacturing PMI may have fallen back slightly in November, but nonetheless remained above levels seen since the start of the financial crisis in late 2007. Production has now risen in each of the past six months, with the latest data broadly consistent with an increase of 0.6% (3m/3m). The upturn is being driven by a recovery in new orders, reflecting rising levels of business-to-business and consumer spending, but the investment goods sector remains a drag on overall expansion. There are also signs that we may be nearing a growth peak, as the new orders-to-inventory ratio fell sharply, but this is balanced by evidence that the manufacturing labour market is moving closer to stabilisation.”
The CIPS (Chartered Institute of Purchasing & Supply)/Markit UK Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 600 industrial companies.
