Manufacturing activity at eight-month low in February

Manufacturing growth accelerates, but labour shortages loom
Credit: Shutterstock.com/ Dmitry Kalinovsky

While still pointing to decent growth, the February Purchasing Managers’ Index (PMI) pointed to activity slowing to an eight-month low. The PMI has reinforced the impression that the manufacturing sector may have lost some momentum in the first quarter of 2018 after a buoyant performance through the second half of 2017.

The manufacturing PMI averaged 55.3 in February/January down from an average of 56.9 in the fourth quarter of 2017. February has showed manufacturing to be at an 11 month low and activity has reportedly slowed across the consumer, capital and intermediate goods sectors.

However, new orders growth picked up to a three-month high in February from a seven-month low in January led by improved domestic demand, though export orders growth slowed to a four-month low.

Howard Archer, Chief Economic Advisor to the EY ITEM Club (a UK economic forecasting group) said: “The February Markit/CIPS manufacturing purchasing survey points to the manufacturing sector slowing for a third month running to be at an eight-month low after hitting a 51-month high in November.

“Specifically, the PMI dipped to 55.2 in February from 55.3 in January, 56.1 in December and a 51-month high of 58.4 in November. Nevertheless, it was still substantially above the 50.0 level that indicates unchanged activity. The manufacturing PMI averaged 55.3 in February/January down from an average of 56.9 in the fourth quarter of 2017.”

“Output growth slowed to an 11-Month Low in February with softer activity reported across the consumer, capital and intermediate goods sector. Better news saw new orders growth pick up to a three-month high in February from a seven-month low in January. Domestic demand was reported to have strengthened in February while export orders were reported to be “solid”.

“Nevertheless, the export orders index dipped to a four-month low in February. Manufacturers’ optimism was relatively high in February. Employment growth in the sector rose for a second month in February to be at a three-month high and were at the second strongest rate since June 2014.”

“The survey pointed to manufacturers’ input prices still rising sharply in February, although they did ease back from January’s 11-month high. This reflected elevated prices for a broad range of commodities and raw materials.

“Growth in manufacturers’ output prices moderated from January’s nine-month high but were also still relatively strong. Overall the pricing data still pointed to elevated price pressures in the manufacturing sector, this will do little to dilute expectations that the Bank of England will hike interest rates in May.”

“The latest hard data shows that manufacturing output rose 0.3% m/m in December, which was an eighth successive monthly increase. It followed rises of 0.2% in November and 0.4% in October. The eighth successive monthly increase in manufacturing output marked the best performance for at least 20 years.

“This meant that manufacturing output rose 1.3% quarter-on-quarter in the fourth quarter of 2017, thereby essentially matching the robust increase of 1.4% quarter-on-quarter in the third quarter.”