The manufacturing PMI for June was released this morning, here are our 5 key takeaways.
1) Manufacturing activity slowed in June
The manufacturing Purchasing Managers Index (PMI) dropped to a three month low of 54.3 in June, with a broad based slowdown across all sectors – consumer, intermediate and investment goods. However this figure still represents a healthy expansion, and is well above the long run average of 51.6…no need to write home just yet.
2) What’s behind the slowdown this month?
Put simply, a deceleration in the growth of new business, both on the domestic and export front.
On the domestic side, there were signs that political uncertainty, both general election related and Brexit induced, took effect, with a softening of new domestic orders suggesting that manufacturers turned more hesitant towards new projects in June. If this trend continues this could be cause for concern, given the domestic market has been the main driver of growth over the last quarter.
Exports fared a little better, with improved orders notably coming from the US and Western Europe. The sector continues to benefit from the two pronged benefit of a pick-up in demand in key export markets, as well as the more competitive exchange rate. However, the rate of expansion did slow overall, and the Markit release does refer to tentative signs that the allure of the weaker exchange rate is waning. Still, global demand is set to remain strong and other survey indicators, including our own Manufacturing Outlook, point to continued solid growth in exports.
3) Recruitment intentions remain robust
Encouragingly the build-up in political uncertainty hasn't derailed manufacturers’ recruitment plans, with manufacturing employment rising for the eleventh month running in the survey.
4) Cost pressures are easing too
Further good news comes from the easing of cost pressures, with rates of inflation in input and output prices down further from the highs reached at the start of the year. This should bring some welcome relief to manufacturers’ margins.
5) Overall the sector remains in a good place
Despite the slightly disappointing reading for June, the average PMI level over the second quarter as a whole was 55.9 – a three year high. Manufacturing should therefore help to offset the slowing of services output, and contribute positively to UK economic growth when the first estimate of Q2 GDP is released on the 26th July.