New manufacturing surveys make ‘grim reading’

The latest quarterly research, from EEF, the manufacturers’ organisation, shows a number of indicators hitting record low levels, and warns that the sector faces a significant squeeze for the rest of this year with only a minimal recovery in 2010. The organisation’s chief economist Steve Radley (pictured) said there was “simply no hiding the fact these figures make grim reading”. He went on: “The past three months have been extremely difficult for manufacturers, with markets at home and abroad showing severe declines. However, whilst few firms expect things to get better in the near future, they are also focusing on making sure they are ready to take advantage of the eventual recovery.” He believed the priority for government was to get credit flowing again and help companies to invest. There was now an urgent need to support companies in hanging on to the skilled workers they would require when the upturn comes, he concluded. The data showed output and orders hitting record lows and further job cuts, with 140,000 forecast losses in manufacturing in 2009. In response, to the downbeat prospects, EEF downgraded its economic forecasts, predicting that manufacturing output would now fall 8.6% this year, with only a pick up of 0.2% in 2010. In engineering, output is forecast to decline by 10.9% in 2009 and by 0.9% next year. The downturn had now spread to all sectors and regions, EEF said, with almost no companies in the motor vehicles sector expecting anything other than falls in both output and orders. Meanwhile the latest of the Chartered Institute of Purchasing and Supply’s (CIPS’s) monthly manufacturing indices also showed manufacturing’s recession deepening, with output and employment falling at record rates. Its Purchasing Managers’ Index (PMI) – a headline index designed to provide an accurate snapshot of manufacturing sector conditions and where a score of 50 is ‘neutral’ – posted 34.7, a tad better than the record low posted last November. CIPS’ February data pointed to record contractions in both output and employment. Companies reported that the ongoing retrenchment in incoming new orders was the principal factor underlying the weaker trends in production and staffing levels. The domestic market remained the centre of the downshift in demand. The rate of decline in new export orders accelerated sharply in February despite the mitigating influence of the sterling exchange rate. Firms reported reduced demand from East Asia, the Eurozone, the Middle East and the US. There was a noticeable shift in the focus of the manufacturing recession towards large sized companies in February. Rates of decline in output, new orders, new export orders and employment were all substantially more severe than at SMEs. Latest data indicated that intermediate goods producers fared worst during February, reflecting their greater exposure to the wider economic downturn and sectors such as autos and construction. Conditions were also weak in the capital and consumer sectors. Roy Ayliffe (pictured), CIPS director of professional practice, said the latest data confirmed the degeneration of the UK manufacturing sector as it contracted at a rate evocative of the dire conditions seen in the early 80s. He went on: “While the recession initially hit SMEs the worst, larger manufacturers – especially those dependent on the automotive and construction sectors – are increasingly struggling. And with bigger firms now in the equation, we are seeing jobs slashed at a record rate as firms try to survive the unrelenting market conditions.” Commenting on future job prospects, Markit Economics’ senior economist Rob Dobson, said: “The labour market exhibited exceptional weakness during the month, with the PMI survey consistent with around 30,000 jobs being lost per month.”