What did we learn about manufacturing from the March PMI?

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Today’s manufacturing PMI registered a solid 54.2, slightly down on last month’s reading of 54.6, but well above its long run average of 51.6.  Was it all good news – here are a few of the main points from the March data.

1. UK manufacturers look like they have had a good first quarter.

Even with the modest deceleration in the monthly PMI reading, the average over the quarter points to a solid rate of expansion for manufacturers at the start of the year. The tallies with our own Manufacturing Outlook survey, which showed a strong positive balance of companies seeing output and orders expand in the first three months of the year.


2. Reports of growth in overseas demand unsurprising given strength of global PMIs.

Both domestic and export markets are playing a role in the sector’s positive fortunes. The synchronised improvement in global PMIs is undoubtedly a key determinant in manufacturers’ on-going recovery. The near 6 year high in eurozone manufacturing activity together with the weaker Sterling exchange rate are creating pretty favourable conditions for UK supply chains.  


3. Predictions of a slowdown in UK consumer spending seem founded.

There’s always a ‘but’, and this time it seems to be the consumer. While companies in intermediate and investment goods are going from strength to strength, consumer facing sectors are dragging on overall activity. Economists’ predictions of the squeeze on households thanks to a sharp pick-up in inflation seem to be borne out in the data.  (We do see some things coming….)

4. Price keep increasing.

And those inflationary pressures don’t look like they’ll be subsiding anytime soon.  The input and output price components in today’s PMI both remain elevated.  

"Price pressures remained elevated during March. Output charge inflation ticked slightly higher, moving back towards the near record high reached in January."


Nothing at all surprising here, commodity price increases and the exchange rate impact on imported materials are well documented in official statistics and a raft of surveys. But we’ve not yet seen all of this pass through to consumer price inflation. 

5. Manufacturers don’t think this is a flash in the pan.

Again, consistent with the confidence indicator in our Manufacturing Outlook survey industry is pretty upbeat about the next 12 months – a trend that has been steadily gaining ground since .. well the referendum last year. According to Markit over half of companies surveyed expect higher levels of production a year from now, compared with just 6% forecasting a decrease.

6. Hiring continues

And with medium term confidence growing and buoyant conditions right now, companies of all sizes are on a recruitment drive. This also isn’t brand new information – official labour market data showed the number of manufacturing vacancies holding above 50,000 in the past six months. 

7. We don’t, however, know what this will mean for investment

So more recruitment, but will there be more investment too? The PMI doesn’t help us answer this. Last week’s reports from ONS of a hefty fall in manufacturing investment are still a bit perplexing given current trading conditions. Our Manufacturing Outlook report did suggest that investment plans had turned a corner, and with strong global activity, a weaker exchange rate and decent confidence across the sector, we might expect to see investment take off again. But these aren’t normal times and with Brexit driving much of the political agenda, that might be enough to keep investment growth in check for now.  


Chief Economist

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