Manufacturing recovers from eight-month slump

6 August 2003
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07 August 2003 | Gareth Mytton

Activity in the UK manufacturing sector grew in July for the first time since last year, as all sectors of the domestic economy expanded.

The purchasing managers' index (PMI), compiled by CIPS and NTC Research, reached 50.9, the first time since last October the manufacturing index has broken the 50 figure that indicates no change on the previous month.

Increased confidence among manufacturers and clients fuelled the fastest rise in ouput for almost 12 months, and order books continued to swell. However, some companies raised output and stocks of finished goods simply to rebuild stocks and in the hope that new orders would keep rising.

They also took advantage of a second successive fall in input prices, caused by the post-Iraq war fall in oil prices and sterling's drop against the dollar.

The services and construction sectors both grew strongly in July, with respective headline indices of 56.6 and 55.9. Nearly a quarter of services companies said that activity had risen in July, thanks to improved economic conditions, clients converting interest into firm orders and aggressive marketing campaigns. All six sectors of the industry said new orders (56) were up.

A modest rise in prices charged reflected higher input costs, according to most companies.

The UK construction PMI hit an eight-month high of 55.9 in July, driven by a big rise in new orders. Forty per cent of companies said orders had increased, which they attributed to improved business conditions. Housing was the fastest-growing sector, but economic uncertainty dampened commercial activity.

In the euro-zone, manufacturing activity fell for the tenth time in eleven months, according to NTC Research. But the PMI stood at 48, its highest figure since March, as the decline eased in both output and new orders.

The Republic of Ireland once again suffered the sharpest fall in output, and also saw the drop in new orders accelerate.

But activity in the euro-zone services sector, led by Italy, grew for the first time this year. The PMI, at 50.2, benefited from recovering consumer and business confidence after the war on Iraq.

Meanwhile, in the US, the manufacturing economy expanded in July after a slight fall in June. The Institute for Supply Management's (ISM) PMI reached 51.8, as 12 out of 20 sectors reported growth. Thirteen said new orders, at 56.6, had risen, while exports, imports, production, prices and backlogs all rose.

The US non-manufacturing sector reached a business activity index of 65.1, according to a second ISM report. No industries said orders had fallen in July.

· More information on the UK and euro-zone PMI reports is available at www.ntc-research.com/Uk/Open/headlines.asp. The full text of the US surveys is available at www.ism.ws/ISMReport/index.cfm

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