PMI back up, but still below 50 growth mark

The figure was up from May's three-year low of 45.9, CIPS/Markit data revealed. But the PMI remained below the 50 growth mark for the second consecutive month. June saw manufacturing production rise for the sixth time in the past seven months, but only following a solid contraction during May. The Chartered Institute of Purchasing and Supply (CIPS) said conditions in the sector remained fragile. Although output volumes recouped some of the losses incurred in the previous month, demand remained weak and job losses continued. On a slightly brighter note, cost pressures fell sharply, with average input prices declining at the fastest pace since May 2009. Weak global market conditions and reluctance among clients to commit to new spend were the main factors suppressing the trend in new work received. The ongoing crisis in the Eurozone weighed on new export orders in June with overseas demand declining for the third straight month. A number of companies indicated that slower economic growth in the US and Asia had also been a factor. Rob Dobson, senior economist at Markit and author of the PMI said factors such as the jubilee holidays had made it difficult to see the underlying trend. "On one hand, the increase in production in June provides hope that the wheels have not fallen off the manufacturing economy, and in particular we are seeing some resilience from the consumer goods sector, which corresponds with recent brighter news on domestic retail sales in the second quarter. However, there's no denying that the second quarter as a whole is looking weaker than the first quarter, suggesting manufacturing output may have contracted by at least 0.5% and therefore acting as a substantial drag on the economy for the fourth successive quarter." Lee Hopley, chief economist at EEF, the manufacturers' organisation, said the more positive take was that conditions appeared to have stabilised but the "extremely weak indicators coming out of Europe" highlighted the on-going drag UK companies were experiencing on new order intake from overseas customers. CIPS CEO David Noble agreed that the effects of the Eurozone crisis and global economic slowdown were making it "a tricky time to build on exports". However, he added, "there were a couple of brighter spots which helped ease the decline. "The significant reduction of input prices was a silver lining for the sector, as businesses tried to claw back some of the margins lost in previous months. Businesses have also responded to weak levels of new orders by working through backlogs of work, leading to an overall growth in output. "The concern for the near future is the spare capacity reported by manufacturers, which could lead to job losses in the coming months unless there is a pick-up in orders."