PMI confirms loss of momentum in q2

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Today’s manufacturing PMI backs up the picture we’ve seen recently of a slowdown in manufacturing activity in q2. So much though that while today’s PMI may have marked the twenty-seventh month of expansion in the manufacturing sector, it was also a twenty-six month low.

Weakness in oil and gas hitting the sector

We weren’t expecting a strong picture today. As you’ll have seen us mention a fair few times on this blog, the fall in the oil price at the back end of last year has led to a big fall in investment in the oil and gas sector. This has hit demand for investment goods, and it’s also hurt manufacturers along the supply chain. This was evident in yesterday’s official statistics confirming that manufacturing grew by only 0.1% in the first quarter of this year, and it was evident in today’s PMI, with output in the investment goods sector falling.

UK consumer keeps spending

In contrast with the picture on investment goods, today’s PMI shows that consumer goods output has continued to grow. We’ve seen this in the official statistics in 2015 so far too. For example, in the first quarter of this year the consumer-focused paper and printing and textiles sectors both saw output grow. This was particularly notable as it contrasts with the longer-term trends for both of these sectors, pointing to healthy consumer demand.

Mixed picture on Europe

The news on Europe is mixed. I said on Monday that a slightly better picture in the Eurozone flash PMIs suggested there may be some upside risk, and today’s Eurozone PMI supports this picture, with even France’s manufacturing sector moving into positive territory after contracting for thirteen months. However, this hasn’t fed through to the UK yet: our manufacturing PMI pointed to still-subdued export demand coming from Europe.

If the strengthening evident in the Eurozone PMI continues, this should start to create additional demand for UK manufacturers and provide a boost to growth. However, the uncertainty that has been hanging over the continent since the last time the UK PMI was this low still hasn’t dissipated, and – as the news of recent weeks has shown – the journey ahead for Europe is far from straightforward.

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