Output, orders and employment fall at record rates

The stark message from the CIPS’s Roy Ayliffe (pictured) on the back of new figures out today (1 October). He went on: “Purchasing managers saw levels of output and new work tumble as firms were hit by weakening domestic and foreign demand. In turn, jobs were axed for the fifth month running in an effort to downsize and cut costs.” However, he added that one hopeful area for the Bank of England’s Monetary Policy Committee (MPC) was the slowing of inflation. Input cost inflation eased to a seven month low as September saw the price of oil and other key commodities fall slightly. Rob Dobson, Senior Economist at Markit Economics, said the retrenchment of the UK manufacturing sector in September was much sharper than had been anticipated. Domestic demand in particular has deteriorated considerably since the turn of the year, with new orders from the consumer, business-to-business sector and investment sectors all down sharply. “The MPC is likely to look for further appropriate opportunities to support the economy and shore up confidence. However, the recent detachment between central rates and LIBOR – on which most business borrowing is set – suggest an immediate cut in the central rate alone will not be sufficiently effective,” he added. The headline seasonally adjusted Purchasing Managers’ Index fell sharply to a record low of 41.0 in September (measures above 50.0 on the index indicate growth and figures below 50.0 indicate contraction) Companies were especially hard hit by the ongoing weakness of domestic demand, as the downturns in the credit, housing and construction markets led to further reports of clients cancelling or postponing orders. Conditions were also weak in foreign markets, as new export business fell at the fastest rate for seven years. Lower demand from overseas clients was mainly attributed to the ensuing slowdown of the global economy. The downturn was most severe in the consumer goods sector in September, where output and new orders both fell at series record rates. New work received also contracted at a record pace in the intermediate goods sector, which led to production being scaled back at the second-greatest extent recorded by the survey-to-date. Output rose slightly at capital goods producers, despite a further sharp decline in new orders. September data indicated that the current weakness of the manufacturing sector was having negative effects on the labour market and suppliers. Staffing levels fell for the fifth month running as the Employment Index posted a reading of 40.1 – reflecting widespread lay-offs, the non-replacement of leavers and the postponement of planned company expansions. Meanwhile, input buying volumes fell at the fastest rate in the survey history. The seasonally adjusted Quantity of Purchases Index recorded a reading of 35.2 as companies aligned their purchasing and holdings of input inventory to reflect lower production requirements. Prices data provided some relief for manufacturers in September. The seasonally adjusted Input Prices Index came in at 73.7, down sharply from 78.1 in August, as input cost inflation eased to a seven-month low, as recent falls in the prices of oil and other commodities continued to filter through to companies. However, the rate of increase in purchase prices remained high and above the survey average. Average charge inflation eased for the first time in 2008-to-date during September, although the rate of increase was still the joint third-fastest in the series history. The seasonally adjusted Backlogs of Work Index fell to a new series low – as it has in each of the past four months – recording a reading of 37.3. The sharp downturn in new work received freed up capacity to complete work on existing contracts. Commenting on the figures, EEF chief economist, Steve Radley said manufacturing sectors exposed to the consumer and construction markets were clearly feeling the pinch. “Today’s PMI numbers provide stark confirmation that growing uncertainty and sliding confidence are making conditions much tougher for manufacturers. "Even as the MPC has faced a difficult balancing act in the recent months, the ground has shifted underneath them. With signs that inflationary pressures may be easing, there is pressing need for the government and the Bank to counter the threat of a sharper downturn in the economy." On the employment aspects specificially he added: "We are hearing stories that many companies exposed consumer and housing markets are responding by cutting back on the number of shifts and starting to contemplate redundancies. But most manufacturers will remain wary of large scale job cuts. After making large redundancies in the last recession, manufacturers found it hard going in rebuilding their skilled workforce and most companies are likely to wait and see how the gloomy and uncertain economic conditions unfold before cutting staff.