Purchasing Managers’ Index® - Manufacturing upturn remains solid

Key points:

• Manufacturing PMI registers 55.3 in March (February: 56.2)

• Growth of output and new orders continues

• Price pressures moderate

Summary:

UK manufacturing production and new orders both continued to rise at robust clips during March, maintaining the positive start the sector has made to 2014. The ongoing upturn also supported further job creation. Price pressures continued to ease, however, as input costs fell and selling price inflation slowed to a seven-month low.

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) eased to an eight-month low of 55.3 in March, signalling a further cooling of growth from the peaks scaled towards the end of last year. The PMI nonetheless remains well above its long run average of 51.4 and has highlighted an improvement in operating conditions in each of the past 12 months.

Manufacturers continued to scale up production at a solid clip during the latest survey period. Output has also risen throughout the 12 months, underpinned by rising levels of incoming new orders. However, rates of increase for output and new business cooled further from the highs registered during the second half of last year. The latest slowdowns were mainly centred on the investment goods sector, where rates of expansion eased markedly.

The domestic market remained the prime source of new contract wins. The trend in new export orders weakened further, with March data signalling the slowest pace of growth for ten months. Where an increase was reported, this reflected higher demand from Europe, North America, China, the Middle-East, Brazil and Australia. Some firms mentioned lower inflows of new business from clients in the Asia-Pacific region.

March data signalled a moderation in price pressures. Average input costs fell for the first time in over one-and-a-half years, reflecting reports from companies of reduced prices for commodities, energy and metals. Output charge inflation eased to a seven-month low, as strong competition and lower purchasing costs led some manufacturers to hold off from raising their selling prices.

Manufacturing employment increased for the eleventh consecutive month in March, with the rate of jobs growth staying close to February’s near three-year high. Headcounts were increased in response to rising production and demand requirements. Marked job creation was recorded in all three market groups. With manufacturers raising capacity again during the latest survey period, backlogs of work were little-changed over the month.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply commented: “In spite of softer rates of expansion, UK manufacturing held its ground in March benefitting from ongoing improved operating conditions.

Leading the way to growth was the strong domestic market which, alongside robust consumer and intermediate production, was able to offset this month’s slower growth in both overseas demand and the investment goods output. The ongoing boost in job numbers, which has now been recorded for eleven consecutive months, has enabled the sector to maintain momentum.

“On the price front, input costs fell for the first time since August 2012, as factories experienced lower commodity, energy and metal prices. In response to this, and driven by strong competition, firms raised their own selling prices to the weakest extent in seven months.

“Although vendor delivery times are still lengthening, the rate of deterioration has stabilised, an encouraging sign that suppliers are responding to the pressure of increased raw material demand.

The Budget’s support for manufacturers should also help boost confidence even further, but it remains to be seen what this will deliver in the long term.”