Manufacturing feeling the heat this summer

Posted on 1 Aug 2008 by The Manufacturer

The CIPS/Markit Purchasing Managers’ Index released today for July makes sorry reading for the manufacturing industry, as soaring purchase prices and factory charges were left unabated by order books which all but bottomed out.

Overall, the PMI, in which readings over 50 denote an increase and under 50 a decrease, fell to 44.3 in July – its lowest level since December 1998. The wretched domestic market led new orders to fall to 40.5, which impacted upon backlogs of work, down to 39.5, while input prices registered a new survey high at 63.1.

Consumer goods recorded the lowest output productivity at 42.9 and the least new orders at 38. The price rise of 82.2 near mirrored the increase in June. The price of investment goods went up at the most at 83.4 though the fall in new orders was slightly less from June to July (42.7), as was its overall output (44.9). The output for intermediate goods fell at 45.9 but was again a gentler decline than in June. New orders fell steeply at 41.1 and prices were up similarly from June at 81.2.

Employment levels suffered their biggest blow since the end of 2001. Job losses have now increased progressively over the last four months and the PMI reading in July was 43.3.

Rob Dobson of Markit described the overall climate of the industry as “a corrosive mix of falling demand and record cost inflation.”

Summarising the effects of the “relentless onslaught” of tough market conditions, Roy Ayliffe, director of professional practice at CIPS said: “Levels of new business plummeted further and at the worst rate in over nine and a half years, with manufacturers facing increasingly tough conditions abroad as well as at home.” Mr Ayliffe highlighted the shortage of raw materials as an increasing concern, alongside the shortage of demand.

“With inflation of input costs and output costs climbing to set new record highs, the MPC (Monetary Policy Committee) will be loathe to risk anchoring inflation expectations at above target levels through a near-term cut in rates,” Mr Dobson warned.