Manufacturing output eased to a nine-month low in October as new orders slowed

Data from the latest CIPS/NTC survey of the UK manufacturing sector indicated that growth of the sector lost further momentum in October.

The seasonally adjusted CIPS/NTC Purchasing Managers Index (PMI) an index designed to provide an overall snapshot of operating conditions in manufacturing posted a reading of 52.9, down further from Augusts three-year high of 56.0, to register its lowest reading so far in 2007. However, the PMI remained above its long-run average (51.6) and signalled an improvement in operating conditions for the twenty-seventh successive month.

The decline in the headline PMI in October was mainly the result of slower growth of production and new orders. Output rose for the twenty-eighth successive month, however, the rate of increase eased noticeably to its slowest since January following weaker growth in new orders.

UK manufacturers reported increases in new business from both their domestic and export clients in October, although the expansion remained firmly centred in the domestic market. The rate of growth in new export orders was only slight and the weakest of the current fourteen-month period of expansion, as reflected in the seasonally adjusted New Export Orders Index, which recorded a reading of 50.9. The weak growth was reflective, in part, of the slower economic growth in the US and the EU.

October data pointed to marked inflation of both output prices and input costs. The rate of increase in average charges was only slightly below the previous months survey record high, as companies continued to pass on part of the rise in their costs to their clients. 

Although easing to its slowest so far in 2007, the rate of increase in average purchase prices remained well above the survey average. The seasonally adjusted Input Prices Index posted a reading of 60.4 as manufacturers reported higher prices for chemicals, food products, metals, plastics and timber. Costs have now increased for the past twenty-seven months.

Continuing the trend so far observed throughout 2007, employment in the UK manufacturing sector increased in October, although the rate of growth was only slight and well below the average for this period. Higher employment reflected increased output and appointments to sales and marketing departments.

October data indicated that average vendor performance deteriorated for the twenty-ninth successive month, reflecting shortages of certain raw materials and a lack of spare capacity at suppliers. However, the rate at which lead-times lengthened was the least pronounced for almost two years suggesting that capacity constraints on the supply-side continued to ease.

Purchasing activity increased for the twenty-third successive month in October, as the seasonally adjusted Quantity of Purchases Index recorded a reading of 52.4. However, in line with slower growth of output and new orders, the rate of increase in input buying eased to its lowest since August 2006. Where a decline in purchasing was recorded, this was linked to a preference for reduced holding of raw material inventory. The seasonally adjusted Stocks of Purchases Index posted a reading of 49.9, to signal a fall in pre-production stocks for the second month running. Inventories of finished products showed a slight gain.

CIPS/NTC PURCHASING MANAGERS SURVEY AT A GLANCE

Roy Ayliffe, Director of Professional Practice at CIPS, said:

Despite ongoing expansion, October data shows that the UK manufacturing sector has suffered a loss in momentum. Purchasing managers explained that this was largely attributed to slower economic expansion in the US and EU markets, as they suffered a decline in new order growth. Such economic challenges also resulted in an ease in input buying which fell to its lowest rate of growth since August last year.

Manufacturers are also continuing to suffer from the rising costs of raw materials with many companies passing this rise onto their clients. Nonetheless, the sector is continuing to expand and new orders from the domestic market helped drive the growth, resulting in further increases in employment.

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The November Report on Manufacturing will be published on Monday 3rd December 2007

The UK purchasing managers' survey is available on subscription from NTC Economics, Tel: 01491 418700.  

 
NOTES:

• The Purchasing Managers' Survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in 620 industrial companies.  The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP.   The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management.  It is designed to provide one of the earliest indicators of significant change in the economy, being issued on the first working day of each month.  The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at "grass roots" level in the economy.  As such the information generated on economic trends pre-dates official government statistics by many months.
• The Purchasing Managers' Index (PMI) is based on a weighted average of five survey variables including measures of output, new orders, suppliers' delivery times, stocks of items purchased and employment.  The individual measures are converted into indexes that vary around 50, a level that indicates no change on the previous month.  An index reading below 50 indicates a decline compared with the previous month; above 50 an increase.  The individual survey indexes have been seasonally adjusted using the US Bureau of the Census X-11 programme.  The seasonally adjusted series are then used to calculate the seasonally adjusted PMI. Where appropriate, please refer to the PMI as the CIPS/NTC Purchasing Managers' Index.
• The Chartered Institute of Purchasing & Supply (CIPS) is the leading international body representing purchasing and supply management professionals.  It is the worldwide centre of excellence on purchasing and supply management issues.  CIPS has over 42,000 members in 120 different countries, including senior business people, high-ranking civil servants and leading academics.  The activities of purchasing and supply chain professionals can have a major impact on the profitability and efficiency of all types of organisation.  Purchasing and supply management professionals also control huge budgets and, in the UK alone, collectively spend over 1,100 billion a year.

NTC Economics is one of the worlds largest specialist providers of business research information.  Current activity includes continuous research providing original data on economic conditions in the UK, Germany, France, Italy, Spain, Netherlands, Austria, Ireland, Greece, Russia, Poland, the Czech Republic, Turkey, Brazil, Hong Kong, China, India and Japan.  NTC surveys are widely used by governments.