Fall in demand thumps confidence as manufacturing PMI hits 28-month low

Posted on 1 Nov 2011 by The Manufacturer

October's data from the Markit/CIPS Purchasing Managers’ Index (PMI) for manufacturing reveals alarming reductions in work flow and new orders.

The Chartered Institute of Purchasing & Supply’s (CIPS) PMI measures a range of business performance metrics from month to month, covering orders, employment and output.

Posting an overall figure of 47.4, the PMI is down from September’s marginal growth figure of 50.8.

Referring to economic output to September 2011, Markit, who compiles the PMI with the Chartered Institute of Purchasing & Supply, said that a 0.5 per cent increase in GDP in the third quarter provides “merely an illusion of a sustained recovery.”

Markit added that producers reported that demand for manufactured goods had fallen at the steepest rate since March 2009.

“The manufacturing sector, which helped to keep growth buoyant earlier in the year, is now struggling to keep its head above water,” said David Noble, chief executive officer of CIPS. “Following a short–lived improvement last month the manufacturing PMI has now dropped like a stone to a 28-month low and officially into contraction territory.

“Confidence is being hit hard… overall the mood is somewhat sombre, a loss of contracts among manufacturing companies and delays in projects has led to the fastest decline in new orders for 31 months and it seems that the backlog of work is also depleting fast along with employment prospects.”

Commenting on nominal GDP growth, Chris Williamson, a director and economist at Markit, added: “An improvement on the meagre 0.1% expansion seen in the second quarter was only to be expected (we had anticipated a 0.4% rise), as business had been adversely affected by several factors, including the Royal Wedding in the spring and the disruption to supply chains caused by the Japanese earthquake. The economy has grown only 0.5% over the whole of the past year.

“While it is reassuring to see that the economy did not slide back into contraction, the third quarter is already history. More important are the forward-looking indicators, of which today’s release of the manufacturing PMI is the most alarming.”

In terms of domestic demand for manufactured goods, he added: “The home market has been hit by austerity measures and job worries, while the escalating euro zone crisis has dampened demand for exports. With the PMI survey suggesting that manufacturing job cutting looks set to get more aggressive in coming moths due to the weakness of demand, while at the same time the Greek referendum and worries about Italy suggest that Europe’s sovereign debt crisis has further to run, the UK economy faces a significant risk of contracting in the final quarter of the year.”

Manufacturers organisation EEF appealed for the Government to reassure industry in its pending Autumn Statement.
“The uncertainty from the Eurozone crisis is clearly now spilling over into weakening demand in the main European markets with confidence slowing markedly. So long as the crisis remains unresolved this is likely to hold back growth in the next few months,” said CEO Terry Scuoler. “It is ever more vital that November’s Autumn Statement sends out a clear message to industry that the government is pulling every lever it has to promote investment and growth.”