September manufacturing data disappoints

Lee Hopley, head of economic policyat the manufacturers' organisation EEF, said: "While manufacturing in Germany and France appears to be rebounding from the recession, we're still moving sideways. Activity still remains at levels far below pre-recession peaks and should wipe away any complacency about the timing or strength of the domestic recovery." Rob Dobson, senior economist at Markit Economics said that at first glance the data was disappointing. He went on: "The headline index posted below its neutral mark for the second month running and came in below market expectations. Growth of output eased sharply, new order gains were less robust than in August and the downturn in the capital goods sector took a turn for the worse. Job losses are still running at a rapid pace. However, the picture is one of consolidation not contraction in September. New orders are rising, sterling is supporting export sales as overseas markets improve and the key orders-inventory ratio remains at an elevated level. All this means that manufacturing should provide a positive contribution to GDP in Q3. Looking ahead, the data are still broadly consistent with a solid rebound following by a subdued recovery. But the outlook remains uncertain given the current reliance on price discounting and fiscal support." Total new orders increased for the third successive month in September, but to a lesser extent than in previous months. New export business rose at a faster rate than in August, supported by improving overseas market conditions and the weak sterling exchange rate. Consumer and intermediate goods producers continued to report higher levels of output and new orders in September. However, the downturn in the investment goods sector deepened. Job losses were reported in the UK manufacturing sector for the 17th consecutive month in September, reflecting ongoing cost reduction and workforce restructuring programmes. Although easing to its slowest since June 2008, the pace of decline remained substantial and stronger than the survey average. Job losses were mainly centred on large-sized manufacturers, as employment was broadly unchanged at small companies. A further modest reduction in input buying volumes was reported in September. Meanwhile, stocks of purchases and finished goods both continued to drop at historically rapid rates. Average input prices fell only slightly in September and at the weakest rate during the current eleven month period of decline. A number of firms reported that rising commodity market prices and shortages at suppliers were starting to filter through to costs. Output prices also fell at the slowest pace during their current eight-month sequence of decline. Over Q3 2009 as a whole, the average readings for most of the survey indexes were higher than in the second quarter. The average for the output index was the highest since Q1 2008, while averages were at their most elevated since Q4 2007 and Q2 2008 for indexes tracking new orders and employment respectively. CIPS CEO David Noble (pictured) said: "The latest data will disappoint those hoping for a quick economic recovery. However, it must be remembered that after hitting an unprecedented low in November last year, we have seen the manufacturing industry make a significant rebound. Total new orders increased for the third successive month in September, output for a fourth month running and new export business rose at a faster rate than in August. But we are now seeing the sector bump along through the recovery phase, as some of the momentum inevitably wanes. "From a holistic point of view, Q3 saw significant improvements on the previous quarter with the average PMI reading at its most elevated since the first quarter of 2008. Moreover, purchasing managers said they're still seeing domestic new orders rise and the weak sterling boosting foreign demand."