New manufacturing data provokes ‘cause for concern’

The authoritative Purchasing Managers' Index (PMI) from the Chartered Institute of Purchasing and Supply showed the sector remaining buoyant in March but growth slowed further from the January peak and output price inflation is at record high. PMI at, 57.1, is still well above the long-run series average although growth of new orders eased sharply, especially at consumer goods producers. Rob Dobson, senior economist at Markit and author of the Manufacturing PMI, said the slower growth and rising price pressures was an unwelcome combination. "Although growth of production remained sufficiently strong to generate another near-record increase in employment, the pace moderated further from January's high, linked to a slump in the rate of growth of new orders, especially from domestic customers," he said. "At the same time, persistent high oil prices due to the unrest in the Middle East and North Africa, rising global prices for many other raw materials and higher import prices due to the weak pound, all led to a survey-record rise in prices charged by manufacturers. "The big question is therefore whether the drop in order book growth represents a gathering in momentum of a more worrying slowdown which, alongside rising inflationary pressures, raises the risk of stagflation. "On the other hand, even after the March easing, manufacturing production looks to have risen 2% in the first quarter, which would be one of the best performances seen over the past 17 years, and the slowdown may simply represent a temporary easing from an unsustainably strong pace at the start of the year. CIPS CEO David Noble (pictured) said inflation was still 'enemy number one' and the problem of phantom demand, whereby purchasers buy greater quantities of scarce raw materials to mitigate against further price rises, was continuing unchecked. Selling prices had now hit record highs as businesses were forced to pass on these costs directly to customers. Mark Lee, newly appointed head of manufacturing at Barclays believed the figures may give ministers some concern as manufacturers appeared less bullish than over recent months. He went on: "Our manufacturing client base is certainly active, with several major refinancings in various stages and, interestingly, renewed interest in the manufacturing sector from private equity firms providing a real sign of optimism. However, with inflationary pressure around wages making up for ground lost in 2010, another front line may be opening up in the war to keep input costs down."