New manufacturing data ‘better than expected’

Better than expected new data from the Chartered Institute of Purchase and Supply (CIPS) indicated that the rates of contraction for both output and new work eased noticeably over the month. The CIPS’ Purchasing Managers’ Index (PMI) rose to 42.9 in April. Despite remaining below the neutral 50.0 mark for the thirteenth month running, the PMI moved further from February’s record low. According to CIPS, manufacturers appeared to maintain a generally cautious approach in April, as global market conditions remained difficult and competitive pressures were again strong. The tough operating environment was reflected in firms’ efforts to trim excess capacity, cut non-essential expenditure and adjust stock holdings. A combination of lower demand and stock depletion led to a reduction in output for the twelfth successive month in April. Stocks of finished goods declined at the joint second-fastest rate in the survey history and holdings of input inventory also fell sharply. Companies indicated that stocks were being reduced in line with lower production requirements and to control warehousing and purchasing costs. Although April saw a substantial reduction in manufacturing employment, the rate of job losses eased with large companies continuing to cut numbers at a faster rate than SMEs. Meanwhile, output prices fell at a record pace, while input costs dropped to the greatest extent since February 2002. Commenting on the latest figures, CIPS director Roy Ayliffe (pictured) said: “Although April saw some reprieve for the UK manufacturing sector, we are still far away from a turn-around and the industry is firmly embedded in the trenches of the recession. A noticeable easing in the rate of contraction for output and new orders was welcomed. But, purchasing managers noted depleted stocks as increasing the risk to supply chains, and tough trading conditions with ongoing cuts continue to bleed UK firms dry. As a result, over a third of firms were forced to streamline staff as they continue to operate on very tight margins.” Rob Dobson, senior economist at Markit Economics said the idea that the latest readings would be met with more hope than despair showed just how bad conditions had become for UK manufacturing. “Although still historically low, the PMI came in above expectations,” he went on. “The output and new orders indexes may still be a long way off recovery levels, but have posted substantial gains in each of the past two months. Further signs export demand is stabilising on the back of the weak pound will also be welcomed by manufacturers.”