Weak September points to a challenging finish to 2012

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The Index of Production stats were out for September today and they point to a challenging finish to 2012 for UK manufacturing.

While on the surface 0.1% expansion is at least growth for the sector, it comes on the back of a weak August (-1.2%) and with PMI indicators suggesting October was a contraction for the sector suggests posting overall growth in q4 will be challenging.

You can see from the Index of Manufacturing chart included in the ONS bulletin that the overall level of output for manufacturing has moved down somewhat over the last year although in the last six months it would probably be more accurate to describe the pattern as flat.

The 'recovery' continues its uneven pattern within manufacturing with some sectors doing very well while others continuing to struggle. So for example electrical equipment (including power generation equipment) and transport equipment (motor vehicles but also aerospace) are actually strongly up on the same month a year ago (18% and 8.2% respectively). However other sectors e.g. chemicals, rubber & plastics are sharply down.

This disparity between sectors is likely to continue. Some sectors with good export exposure (especially emerging markets), like motor vehicles and civil aerospace, will continue to forge ahead. Other sectors with exposure to infrastructure spending, which remains constrained, e.g. constructions products have a difficult short-term future.

I think the indicator to watch will be the IoP (and within that the IoM) for October (out December 7). This should give us some sign of whether the sentiment readings from the PMI are going to translate into real contraction in q4.


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