What does the PMI tell us about relative health of UK manufacturing?

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The monthly manufacturing PMI, published today, is following the downward path carved by official statistics and other private sector survey in recent months. While the indicator adds to the story on where UK manufacturing is at right now, it also helps to answer a question which is cropping up more and more these days – is the UK manufacturing sector uniquely challenged?

I’ll kick off with a few of the headlines from today’s PMI release. The headline indicator shed just over 2 points compared with January, dropping to 50.8, or the lowest since April 2013. However, the indicator held up above 50 – the reading that marks the difference between expanding and contracting activity levels.

Sector splits

As we’re always at pains to point out, manufacturing is a pretty diverse sector of the economy and not all manufacturing sectors are experiencing the same demand conditions. The deceleration in activity in February seemed especially apparent in the investment and consumer goods – the former of which is driven by oil and gas activity and business investment plans. Neither of these are looking particularly supportive at the moment.

Intermediate goods have been faring a bit better – this segment of manufacturing includes products such as chemicals, plastics, wood and paper products and some electrical components. Some of these sector can point to a slightly better outlook in construction activity, solid growth in automotive supply chains and the price benefits of the current level of Brent crude boosting the chemicals sector.

Is the UK an outlier?

One persistently volatile component of the PMI is the orders picture. On the export side, the year hasn’t got off to a good start, with falls in demand noted in Brazil and Russia (that commodity story again) and Europe. This isn’t out of synch with official data or our own Manufacturing Outlook report in the second half of last year. Although – it’s interesting that there wasn’t a special mention of China.

These external factors aren’t just weighing on UK manufacturing sectors, there’s been a general slowing in the PMI across most of Europe since the start of the year – as the chart below shows. The French and German manufacturing PMIs are close to stagnation with activity in Germany falling back to its lowest level since the end of 2014. In the US, the manufacturing index has been languishing below the 50 mark since last November – the oil price, dollar strength and exposure to weak world trade growth all dragging activity down (February figures not yet released).

So the story for manufacturing seem fairly familiar the world over. While there are always some sectoral exceptions the prospects for world trade growth, the collapse in commodity prices and some specific over-supply issues all like to remain with us for much of this year, manufacturing growth will most likely remain subdued and the UK isn’t an outlier in that respect.

pmimarch

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