Manufacturing bounces into 2013 on a high

The influential Markit/CIPS Purchasing Managers' Index (PMI) rose back above the 50.0 no-change level in December, recording a 15-month high of 51.4. Manufacturing output increased for the second month running, with the rate of growth accelerating sharply to a 20-month high. The sharpest gains were reported by consumer and intermediate goods producers. The improved output came mainly in response to domestic demand with the level of new export orders continuing to contract in line with low demand from the eurozone. Although manufacturing employment declined for the eighth month running in December, the rate of job loss was negligible and the least marked for four months. Signs of spare capacity in the manufacturing sector during December were highlighted by a further decrease in backlogs of work. Levels of work-in-hand (but not yet completed) have contracted in each of the past 23 months. The cost of raw materials surged higher in December, with the rate of increase hitting a nine-month high, with manufacturers reporting higher purchasing costs for chemicals, energy, food products and plastics. Rob Dobson, senior economist at survey compiler Markit said the data signalled "a reassuringly solid return to growth for the sector", although manufacturers remained "on a cost cautious footing". CIPS CEO David Noble said it was "very encouraging to see 2012 end on a high" but believes "the sector is far from out of the woods". The decline in new export orders demonstrated that challenging global economic conditions and the eurozone crisis continued to act as a drag, he added. Lee Hopley, chief economist at EEF, said the data presented a better than expected finish to 2012, but the strength of that recovery would "depend on what happens in other parts of the world" with exporters hoping for stability in the eurozone, continuing demand from the US and emerging economies.