Positive. Manufacturing. Indicator?

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Official statistics have reported five consecutive quarters of expansion. Although the most recent data, for the three months to June, indicated a sharp slowdown in the pace in growth.

Kicking off the data reporting for the second half of the year is today's manufacturing PMI. As shown below, the headline indicator fell back to the lowest level seen so far this year. That's not to say alarm bells should start ringing. The survey continues to point to growth in activity across the sector, and at a faster pace than the long-term average.

Manufacturing PMI50 = no changeSource: Markit Economics

Output, orders and jobs still growing

Moreover there is a fair bit of information that sits beneath the composite number - much of it still pretty positive. Key points:

The headline indicator fell to 55.4 from 57.5 in June, but it has been above the 50 no change mark for 17 months.

Output grew across all sectors (intermediate, investment, consumer).

The employment component was positive for the 15th month running.

Selling prices edged higher.

And in line with a lot of the anecdotal evidence that EEF has picked up manufacturers' focus on new product development and accessing new markets is also reported to be making a difference to the fortunes of the sector this year.

Not a risk free environment

The downward drift in the PMI is still consistent with EEF forecasts for overall manufacturing growth this year and the UK remains the strongest performer in Europe. Also released today were activity indicators for the main Eurozone economies and the picture was patchy to say the least. Manufacturing activity in Germany and Italy is holding firm, but in France and some of the other periphery economies, recovery still looks to be some way off.

While UK manufacturers continue to live with a lacklustre Europe, there are still additional risks which could weigh on activity in the latter part of this year - not least from geopolitical events in Russia and the Middle East, the future path of Sterling, some signs of price increases and capacity pressures in the supply chain.

Manufacturing PMI50 = no changeSource: Markit Economics


Chief Economist

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