Manufacturing PMI at 17-month low as new order growth slows

CIPS 1 October 2014

Manufacturing PMI posts 51.6, down from 52.2 in August


Markit/CIPS UK Manufacturing PMI®

- Manufacturing PMI posts 51.6, down from 52.2 in August

- Growth of output and new orders ease further

- Price pressures remain subdued

Growth of the UK manufacturing sector slowed further in September, as companies reported weaker increases in production, new business and
new export orders. Price pressures were also relatively muted, as output charge inflation slowed further and input costs fell for the first time in five

At 51.6 in September, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) fell to a 17-month low and a reading only slightly
above its long-run average of 51.5. The average PMI reading in the third quarter (52.8) was also the weakest since the second quarter of last year and down sharply from those seen during
the first half of this year.

The mid-year slowdown in the rate of expansion of manufacturing production continued in September, as growth of new orders eased to near-stagnation.

Companies indicated that new business rose at softer rates from both domestic and overseas markets.

Growth of new export business was the slowest in the current 18-month sequence of increase, as the sterling-euro exchange rate and weaknesses in the euro area economy impacted on sales to a number of nations within the currency union. Where an increase in new export orders was reported, this reflected demand from North America, Germany, Scandinavia and the Middle East.

In contrast to the output and demand indicators, job creation accelerated during September, regaining most of the momentum lost in the prior month. However, the rate of increase in payroll numbers remained below those registered during the opening half of the year.

Average output prices rose at the slowest pace during the current 15-month sequence of increase in September, as lower raw material costs and
higher competition restricted selling price inflation.

The reduction in average purchase prices was the first in five months. The decline was largely driven by lower commodity prices and, in the case of
imported inputs, exchange rate factors.

Backlogs of work declined for the seventh successive month in September, as companies maintained sufficient capacity to meet the needs of
new and existing contracts.

Aiding the depletion of outstanding business was a reduction in stocks of finished goods. Inventories of purchased goods also showed a further decline, although higher levels of purchasing activity eased some of the pressure on input stock levels.

David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply:
“The slowdown trend in the manufacturing sector which has been developing in recent months became embedded in September, with growth of output and new orders slowing, and resulting in a 17-month low in performance. Whilst the sector is still expanding, growth is much softer than that seen in the first half of the year and indicates that growth in manufacturing may be harder to find in the final quarter of the year.

“The continued weakness in Eurozone countries and the euro-sterling exchange rate appeared to particularly undermine growth in September, and resulted in near stagnation in new manufacturing orders. Demand from North America, Scandinavia and the Middle East helped to offset this slowdown but with fifty percent of the UK’s exports going to the EU, manufacturers are once again faced with the need to seek out new opportunities if broad-based, long-term growth for the sector is to be assured.

“Manufacturers reported an acceleration in job creation in September in comparison to the previous month, signifying that there is little spare capacity. With output price inflation at the lowest for 15 months and backlogs of work declining for the seventh successive month, it seems that manufacturers are adopting a “wait and see” approach to this slowdown. So anyone involved in supply chains and the wider economy will be watching carefully as we head towards the end of 2014.”

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