Data suggests manufacturers may be 'past the worst'

According to the month’s first economic indicator – the purchasing managers’ index (PMI) from the Chartered Institute of Purchasing and Supply (CIPS) – overall conditions in the UK manufacturing sector remained weak in March, with output, new orders and employment dropping at historically marked rates and disinflationary pressures continued to build. However, indexes tracking production and new work rose sharply, both regaining much of the ground lost following the deepening of the manufacturing recession during the fourth quarter of 2008. The main PMI posted a reading of 39.1 in March. Although still well below the neutral 50.0 mark, the current reading is the highest since last October. Production fell for the 11th month running, reflecting the continued weakness of both domestic and foreign demand, reported CIPS. Total order books have now contracted for 13 successive months – the most sustained period of decline since the survey began in January 1992. However, rates of decrease for both variables were noticeably slower than in February. The downturn remained broad-based. Production and new business dropped in the capital, consumer and intermediate goods sectors and across small, medium and large sized producers. Redundancy programmes and plant closures implemented due to the manufacturing recession resulted in further job losses in March. Workforce downsizing was again most prevalent amongst large companies. However, the overall rate of job losses moderated for the first time since employment started to fall in April 2008. Input costs and selling prices declined in March. Recent falls in global commodity prices and lower demand for raw materials exerted downward pressure on purchasing costs. Reduced selling prices were mainly linked to adverse market conditions, strong competition and falling input costs. New export orders fell for the 10th successive month as companies reported lower demand from mainland Europe, the Republic of Ireland and East Asia. However, the rate of decline was slower than in the previous month as some firms indicated that the weak sterling exchange rate mitigated some of the worst effects of the global downturn on export volumes. CIPS director Roy Ayliffe (pictured) said: “PMI indices for output and new orders approached levels seen just before the global recession took its deepest plunge and nosedived around the time Lehman Brothers collapsed. Coupled with this, March probably saw firms dismiss staff at a slower rate of around 20,000 to 25,000 a month – considerably less than the 30,000 in January. “However, with purchasing managers still concerned over falling levels of production and weak demand, it’s clear we aren’t out of the woods yet. If anything, latest data serves to highlight how badly the sector faired around the turn of the year.” Rob Dobson, senior economist at Markit Economics said the substantial gains in the output and new orders indexes were heartening and raised hopes that manufacturers are past the worst.