Unexpected increase in factory output says PMI

Posted on 3 Jan 2013 by Tim Brown

British manufacturing activity rose unexpectedly in December 2012 to increase at the fastest rate since September 2011, according to the latest PMI figures released yesterday.

The Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) rose to a 15-month high of 51.4 in December 2012 from an upwardly revised 49.2 in November.

Britain’s economy was believed to have shrunk shrink 0.1% in the last three months of 2012. But Wednesday’s figures boost prospects that the economy may have avoided slipping into its third period of contraction since the 2008 financial crisis.

The upturn in the manufacturing index takes it above the 50-mark that separates growth from contraction for the first time since March last year.

Despite the good news it is likely that the weak PMI figures for October and November mean that manufacturing likely still contracted in the fourth quarter as a whole, Markit said.

“It was a pleasant start to the new year and I think it’s justified,” said Alan Clarke, UK economist at Scotiabank. “There’s probably further improvement ahead and it will be a less negative start to the year than what we’ve had of late.”

US manufacturing data followed suit and rose to a seven month high in December 2012 indicating a solid expansion of the sector.

The final Markit US Manufacturing Purchasing Managers index of 2012 was 54, down slightly on the 54.2 earlier flash estimate, but up from 52.8 in November and the highest since May last year.

Output, new orders and exports also expanded at a faster rate month-on-month although the input prices sub-index, at 61.9, remains elevated. One in five companies reported an increase in the new orders with the overall rate of growth the fastest since April, while new export orders rose for the second month running and at the strongest since March.

Employment in the manufacturing sector rose, with around 12% of firms hiring additional staff in December, the largest rise in job creation in eight months.

Chris Williamson, chief economist at Markit, said: ‘While economic growth may disappoint in the fourth quarter compared to the 3.1% rate of expansion seen in the third quarter, the recent run of positive PMI surveys towards the end of 2012 suggests that prospects have begun to look a little brighter for the new year.’