The manufacturing PMI was stronger than expected in September, increasing to 51.1 from an upwardly revised 49.4 previously (consensus/BarCap: 48.5). While at this level the index is consistent with only modest growth, the more significant fact about the September figure is that it comes after two months of falling activity and suggests that the state of manufacturing might not be as bad as feared.
The output sub-index rose by 4.1 points to 53.3 and the new orders sub-index increased by 2.5 points to 50.5. New orders were boosted by domestic demand as the new export orders sub-index fell by 1.9 points to 45.0, reporting the second consecutive fall in orders from abroad. While the fall in foreign orders is concerning, it is unsurprising considering that the economic outlook for the UK’s trading partners has deteriorated markedly in recent months. The employment sub-index rose by 0.4 points to 49.6, but remains consistent with a marginal fall in employment.
More encouraging news came from the price measures where the input price sub-index fell by two points to 58.8, reporting the sixth consecutive month of easing in input price pressures. However, it is worth bearing in mind that the easing in input price pressures signalled by the PMI survey has yet to show in official figures (see chart). The output price measure fell by 1.7 points to 55.5. We would note that despite the recent easing in price pressures, both input and output price indices continue to be consistent with above-average price increases.
The improvement in the September headline measure, although broadly based, is still consistent with only a small expansion in the sector. Furthermore, the index was reporting a contraction in activity for the previous two months and the average for Q3 as a whole indicates manufacturing activity was flat over the quarter. Although the September figure is not as bad as expected, the data for Q3 as a whole are still consistent with an abrupt stalling in manufacturing activity.
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ECONOMICS RESEARCH | INSTANT INSIGHTS