Manufacturing PMI edges higher in 2015

Posted on 2 Feb 2015 by Victoria Fitzgerald

Manufacturing PMI expanded to 53.0 in January, higher than December’s revised reading of 52.7(originally published as 52.5).

Key findings:

  • Manufacturing PMI at 53.0 in January
  • Growth of output and new orders ticks higher
  • Purchase prices fall at fastest pace in over five years

The big mover during January was the trend in purchasing costs, as the recent slump in oil prices fed through to the steepest drop in input costs since May 2009.

The data also revealed that manufacturing output expanded for the twenty-third consecutive month in January, underpinned by a further increase in incoming new orders.

The domestic market remained the prime driver of improved new order inflows. Solid output growth was registered at both intermediate and investment goods producers. However, the rate of growth in the consumer goods output ground to a near standstill pace.

There was also a modest increase in new business from overseas, representing the first meaningful improvement in new export order volumes registered for five months.

Companies reported increased demand from France, Germany, Japan, the Middle East, Poland and the USA. The ongoing upturn in the manufacturing sector encouraged further job creation during the latest survey month.

Staffing levels rose for the twentyfirst successive month, although the rate of increase eased to a three-month low. Higher employment aided efforts to reduce backlogs of work at manufacturers, leading work-in-hand volumes to fall sharply.

January data signalled a steep drop in average input costs. The rate of purchase price deflation accelerated sharply to its steepest for over five-anda-half years.

Exactly 31% of companies reported a decline in input costs, which many linked to the recent slump in international oil prices. This had reduced the cost of energy, transportation and oil by-products.

Lower purchase prices filtered through to average output charges in January, as companies reduced their selling prices for only the second time during the past five years. However, the rate of decline in output charges was only mild and substantially less marked than that signalled for input costs.

Rob Dobson, senior economist at survey compilers Markit: “UK factories reported a welcome upturn in growth of output and order books at the start of the year, but producers clearly remain stuck in a low gear.

“The rate of expansion remains muted, however, with output rising at a quarterly pace of around 0.2% in January, barely improving on the 0.1% registered in the final quarter of last year. At this rate, the sector will provide little meaningful boost to the economy in the first quarter.”

David Noble, group CEO at the Chartered Institute of Procurement & Supply: “Manufacturers were picking up the pace a little as the sector reported a marginal increase in activity driven by domestic demand which continued to show signs of life.

“Though the overall index showed a modest increase, it may be enough to allay fears of an overall slowdown in the UK economy as the Eurozone continues to experience problems.

“The world’s eyes will be focussed on reactions to Eurozone deflation and a response to the UK’s disinflationary pressures and how all this will be played out for manufacturing in the months ahead.”

Mike Rigby, head of manufacturing at Barclays said: “Following manufacturing output rising by just 0.1% in Q4 last year, we shouldn’t be too surprised that growth in the sector is sluggish entering 2015.

“Domestic demand continues to drive the growth we are seeing in the economy and with a troubled Eurozone bearing down, the exporting surge the sector needs to boost growth and help rebalance the recovery still appears to be some way off.”