Sharp acceleration in manufacturing output growth in April

Manufacturing News, Source : TheManufacturer.com
Published : 01 May 2007 17:21
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The month’s first economic indicator of manufacturing’s state of health pointed to a noticeable acceleration in the rate of expansion of production as output rose at its fastest rate since September 2006.

This was supported, says the April data from the CIPS/RBS PMI survey of the UK manufacturing sector, by robust growth in the amount of new work received. Manufacturers maintained a solid degree of pricing power, as average factory gate prices rose at a near series record pace. This reflected, in part, a further increase in cost inflationary pressures.

Despite the marked acceleration in output growth, the level of the seasonally adjusted CIPS/RBS Purchasing Managers’ Index (PMI) fell slightly to a three-month low of 53.9. The decline in the PMI was mainly the result of a weaker trend in the stocks of purchases component, which signalled the sharpest contraction in inventories for almost two years.

The seasonally adjusted New Orders Index remained comfortably above the no-change mark of 50.0 with a reading of 56.1 in April. Panellists attributed the rise in new work received to successful product launches and improved marketing activities. However, growth of new orders was predominantly centred on the domestic market.

Improved demand from clients across mainland Europe, Asia and Africa led to an eighth successive monthly increase in exports, as the seasonally adjusted New Export Orders Index posted a reading of 53.7. Although remaining solid overall, the rate of growth in new orders from abroad eased to its lowest level in three months. Slower growth in total new export orders was especially noticeable in the consumer and investment goods producing sectors, and was, in part, the result of the recent strengthening of sterling relative to the US dollar.

Growth of output and new orders was broad-based across the three market groups covered by the survey, with the consumer goods sector recording the sharpest rates of expansion for both variables.

The seasonally adjusted Input Prices Index posted a reading of 63.2 in April, as the inflation rate of average purchase prices reached a six-month high. Companies reported that higher raw material costs remained the principal factor driving up their average prices charged in April. There were also reports that high oil prices had led to an increase in the cost of many oil by-products, including synthetic fibres and solvents. Output prices have now increased in each of the past twenty-one months.

Employment in the sector increased again in April, continuing the trend seen so far in 2007. However, at 50.5, the seasonally adjusted Employment Index was at a level consistent with only a marginal rise in staffing levels and the slowest rate of jobs growth during this period. Companies who reported the recruitment of additional staff generally linked this to higher production.

Shortages of certain raw materials and a lack of spare capacity at suppliers resulted in a further noticeable deterioration in average vendor performance. Increased demand for inputs also contributed to longer lead-times, as purchasing activity rose at a strong rate in April.

Roy Ayliffe, Director of Professional Practice at CIPS, said: “April saw a fairly weak performance from the manufacturing sector, compared to the first quarter of the year. Purchasing managers attributed the performance to the ongoing increases in input prices, particularly those of chemicals, polymer and timber. This has resulted in rising factory gate prices as companies look to offset the rising input costs.

"Nonetheless, the manufacturing sector did see pick-up in other areas with purchasing managers seeing improved demand from Europe, Asia and Africa. This helped drive new export orders but the recent strengthening of sterling relative to the US dollar meant that growth in new orders was slightly slower than in previous months.”

 

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