Fastest growth in manufacturing jobs for 15 years is ‘remarkable’

According to the Chartered Institute of Purchasing and Supply (CIPS), the UK manufacturing sector continued its solid recovery in June. Output and new orders rose at robust rates, encouraging manufacturers to increase employment at the quickest pace since February 1995. However, growth of new export orders eased sharply and there were reports that pressure on global supply chains had disrupted production and delivery schedules, and driven input prices higher. The Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI) – which is calculated from data on new orders, production, employment, supplier performance and stocks of purchases and measured against the neutral benchmark of 50.0 – posted 57.5 in June, down only slightly from the fifteen-and-a half year highs of 58.0 reached in April and May. CIPS said the PMI had signalled an improvement in operating conditions in each of the past nine months. Manufacturing production rose for the thirteenth consecutive month in June. Although the rate of expansion eased to a five-month low, it was only slightly less marked than March's fifteen-and-a-half year high. Higher output reflected improved demand and efforts to reduce backlogs of work. June saw the level of incoming new orders increase for the twelfth straight month, as manufacturers benefited from successful promotional campaigns and stock rebuilding at clients. Anecdotal evidence suggested that domestic demand remained solid. In contrast, growth in new export orders – a key support to the recovery in recent months – downshifted markedly. New export business posted only a marginal increase in June, after growth had hit a series record high only two months earlier. Improved demand was reported from Asia and the US. However, some firms indicated that the fragile recovery in the Eurozone and recent strengthening of the exchange rate against the euro had impacted on sales to mainland Europe. Manufacturing employment increased for the third month running in June and at the fastest pace in over fifteen years. Jobs growth was broad-based bysector, with higher staffing reported by producers of consumer, intermediate and investment goods. Firms linked higher employment to increased production and rising backlogs of work. Some also mentioned that, as the recovery took hold, it had been necessary to raise capacity following the substantial reductions initiated during the downturn. Rob Dobson, senior economist at Markit and author of the UK Manufacturing PMI said: "June PMI data signal that growth of UK manufacturing production in the second quarter of 2010 was sustained at an average pace close to the 1.2% first quarter gain reported by the official figures. The rate at which the sector has been recouping the output lost during the recession has been nothing short of remarkable, with around one third having been recovered by the end of June. The manufacturing labour market appears to be moving more firmly into recovery position, with June seeing jobs added at the fastest pace since 1995. "However, the latest survey offered signs that conditions may have passed their peak, as indexes for output and new orders have tapered off in recent months. Growth of new export orders has also downshifted sharply since the survey record growth seen in April, as the fragile Eurozone recovery and sliding euro exchange rate hit sales. With the impact of austerity measures on demand – both here and abroad – still unknown, the latter half of the year may provide a real test for the sustainability of the recovery." CIPS CEO David Noble (pictured) said it had been a tense month for the UK manufacturing Sector and also feared that "looming headwinds" were causing some insecurity. "All eyes will be peeled to see if the sector can carry forward this strong pace in the second half of the year," he said. Manufacturers would certainly have to work hard to outstrip competition and secure future business wins if the pace of recovery continued. Graeme Allinson, head of manufacturing, transport and logistics at Barclays Corporate, believed that UK manufacturers were now adopting a more pragmatic, longer term view towards economic recovery. He went on: "Today's slightly subdued figures, when compared to last month's, suggests sentiment that is more in line with the economic realities of the sector. The focus over the past 18 months has been on cost cutting. However, manufacturers are starting to realise there is still the need for ongoing investment in order to remain competitive. Indeed, investment in the sector is critical as companies look to develop more robust operations and aim to capitalise on operational cost efficiencies as well as investing for growth opportunities as and when they present themselves." Lee Hopley, chief economist at the manufacturers' organisation EEF also introduced a note of caution to what she otherwise described as "the run of positive news". She went on to warn: "taken with the European indices, the figures raise some question marks about prospects for the second half of the year as new order intake, especially exports, has eased and cost pressures continue to build. The risks to the economy haven't yet receded, reinforcing the need for governments to focus on growth as well as deficit reduction."