November 6, 2008 | posted by Michael Baxter in manufacturing | comments (0) |

Good and bad news has also emerged from the Chartered Institute of Purchasing Supply (CIPS). For so long now, it’s just been bad. The CIPS Purchasing Managers indices for services and manufacturing have been crashing in recent months. October was no exception. Both indices were bad, really bad.

And yet, good news also shone through. Maybe the best piece of good news from CIPS in a very long time.

The CIPS Purchasing Managers index for services fell to 42.4 in October. To put that in context, anything under 50 marks contraction, and the index has now been below 50 for six months.

The October score marked the lowest level in the 12-year history of the index.

Even more worrying, over a third of panellists forecast that activity will be lower than present levels in one year’s time, with many citing fears of rising unemployment and a prolonged recession. The picture of woe is made complete with news that the index for measuring employment also fell to a 12-year low.

So much for services. The Manufacturing index actually improved a tad in October, up from 41.2 to 41.5. But the fact is, last month’s score represented a record low.

Worryingly, but unsurprisingly, the export index for October stood at 43.5, the lowest reading for a very long time. With the pound having fallen so far, you would have hoped for a pick up in this index, but with the UK’s export markets performing so badly, you can see why.

But then, see through that, and there is good news.

The index for measuring the prices paid by manufacturers collapsed, too. In July this index stood at 81.6, an all-time low. By the month just gone, the index was down to 55.6, the lowest reading since July 2005.

The index for measuring average prices in the services sector fell to a 13-month low.

The falling price indices are good news for more than one reason. They mean that inflationary pressures are falling, which then means the Bank of England is in a better position to justify cutting interest rates. It is good news for us, too, because it means our own affordability levels will improve.

But October also saw the index measuring prices paid by manufacturers dip below the index measuring prices charged, for the first time in several years. If this can continue, then manufacturers will find their margins improve, too. Now, manufacturers have been swallowing the largest part of their raw material inflation for a very long time, but this is a move in the right direction. Don’t expect this to positively affect jobs for a while yet, but if the trend continues, the job market will see a boost eventually.

October 1, 2008 | posted by Michael Baxter in manufacturing | comments (0) |

It’s the first day of the month,  and that means it is time for the latest Purchasing Managers Index  (PMI) from the Chartered Institute of Purchasing Supply  (CIPS) and Markit.  This is usually a tad dull,  but not this time.  This time the finding really is something to make you sit up.

Latest PMI data indicated that UK manufacturers are currently facing the toughest operating conditions in the seventeen-year survey history.  The headline seasonally adjusted Purchasing Managers’ Index fell sharply to a record low of 41.0 in September,  as levels of output,  new orders and employment all contracted at the fastest rates in the series history.

Companies were especially hard hit by the ongoing weakness of domestic demand,  as the downturns in the credit,  housing and construction markets led to further reports of clients cancelling or postponing orders.  Conditions were also weak in foreign markets,  as new export business fell at the fastest rate for seven years.  Lower demand from overseas clients was mainly attributed to the ensuing slowdown of the global economy.

The downturn was most severe in the consumer goods sector in September,  where output and new orders both fell at series record rates.  New work received also contracted at a record pace in the intermediate goods sector,  which led to production being scaled back at the second greatest extent recorded by the survey-to-date.  Output rose slightly at capital goods producers,  despite a further sharp decline in new orders.

Paul Dales, UK economist at Capital economics said the “fall in the CIPS/Markit manufacturing PMI from 45.9 in August to 41.0 left it at its lowest level since January 1992.  At this level,  the survey is roughly consistent with the official measure of manufacturing output falling by a whopping 7 per cent p.a. compared to August’s -1.4 per cent.  Perhaps more worrying was the further weakening in the official measure of services output given that the services sector makes up 75% of overall GDP.  In the three months to July,  services output was flat compared to the 0.2% rise in Q2.  If services output were flat in August and September,  this would be enough to reduce Q2 GDP growth from 0.0% to at least -0.1 per cent in Q3.  Overall,  these figures bring the UK economy much closer to recession.”

But at least there was some good news.  CIPS said  “the seasonally adjusted Input Prices Index came in at 73.7, down sharply from 78.1 in August,  as input cost inflation eased to a seven-month low,  as recent falls in the prices of oil and other commodities continued to filter through to companies.”

July 2, 2008 | posted by Michael Baxter in manufacturing | comments (0) |

Do you remember those cartoons?  When a character runs over the edge of a cliff, it will look around for a second or so, look worried, and then fall.   Yesterday, a report was released to suggest British manufacturing has run over that cliff.  But the time for sitting in space looking around has ended. In June the manufacturing crash began.

The Chartered Institute of Purchasing Supply and Market publish the purchasing managers index every month.    It is an important report, and for that reason we cover it most months.  It is important, but a tad dull.  Not much happens.

This changed in June, but, alas, for the worse.

The CIPS purchasing managers index fell from 49.5 in May to 45.8 In June.  This is the lowest reading for the index since it began in 2001.   A score of below 50 indicates contraction in the industry.  Until April, the index had posted a score of 50 or higher every month for 45 months.

Worryingly, and a little surprisingly, the new export index collapsed too. Falling from 51.1 to 47.4.

As for inflation in the world of manufacturing.  Well, we are afraid to say that if you combine this information with the woe described above, then a perfect storm is created.

The two indices, measuring prices paid by manufacturers and charged by them, hit new all-time highs.  But the prices paid index continues to outstrip prices charged, meaning manufacturers are still swallowing much of their higher costs. 

This could mean that down the line they will be forced to pass a higher proportion of their costs on to customers.    So when oil does finally start to fall, and the prices paid index starts to drop, the prices charged index will probably continue to rise for some time.

Roy Ayliffe, Director of Professional Practice at the Chartered Institute of Purchasing and Supply, talked about the “relentless onslaught of ever weaker domestic demand, slower global economic growth and record cost inflationary pressure,” while Rob Dobson, Senior Economist at Markit Economics, referred to the “brutal combination of survey record cost inflation and weak domestic demand in June.”

In cartoons, whenever a character falls off a cliff, it tends to dust itself off and, bearing a few rapidly disappearing bruises, goes about its business.  So, will it be like that for manufacturing?  Mr Dobson said: “Output and new orders suffered their sharpest drops since late 1998, partly reflecting the ongoing downturn in the housing and credit markets. With conditions in these markets showing no sign of immediate improvement, manufacturing jobs cut at the fastest pace in three years and a series record fall in work-in-hand, times are likely to remain tough entering Q3. On the prices front, output charge inflation broke a new record high in June, which will raise further alarms on the MPC.”

Ummm, so that means No.