Whats happening in manufacturing activity | EEF

Whats happening in manufacturing activity?

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Manufacturing activity eased further in February, with Markit/CIPS manufacturing PMI falling marginally from 55.3, to 55.2, its lowest level for 8 months. Despite the fall (its third consecutive since November's 4 year high), the sector remains in good shape, with the indicator well above its long run average, and strong fundamentals set to sustain the positive outlook. Here’s what you need to know from today’s release.

Manufacturing activity increases, but at a slower pace

The important thing to remember is that while the pace of manufacturing production slowed, activity was still on the up. This is the key takeaway from today’s data and is broadly the same message as last time round, when we said that manufacturing was still growing at a healthy notch, just not at the same rate compared to the dizzy heights seen at the end of 2017. No need to press the panic button yet.


Orders are looking healthy

While production decelerated, new orders – both domestic and foreign – picked up. New export orders have been rising for the best part of two years now, with manufacturers reporting increased sales to the US, China, Europe and Asia in February. This of course, as we keep saying, is coming on the back of a thriving global economy, with strong official growth figures being reported across the world. The weaker level of Sterling (despite its recent rally), and corresponding supportive trading conditions continues to help too. But it’s the improvement in domestic orders which is perhaps most pleasing, something we have noticed when engaging with manufacturers across supply chains.


The outlook is positive

With order books holding up, manufacturers’ outlook about their business also remains positive. Indeed almost 56% of companies are forecasting output to be up in a year’s time, compared to only 6% expecting a decline, with the degree of positive sentiment remaining close to January’s 28 month high. Manufacturers therefore appear to be enjoying a sweet spot.


Employment is also on the up

Happily the positive sentiment and healthy activity is leading manufacturers to increase their headcount. Job creation increased for the 19th month in a row, with the rate of expansion the second fastest since mid-2014. The increase in capacity also aided efforts to reduce backlogs of work, which fell for the second consecutive month.


Any downside?

Prices. Input prices rose sharply in February, as the cost of raw materials and commodities increased. Part of these increases were passed onto consumers, squeezing household in the process. With commodity prices, notably oil set to be sustained around the $60/barrel mark this year, this puts some weight behind the Governor of the Bank of England’s remark that inflation could rise back above 3% mark this year.


Summing up…

Despite the fall in the PMI indicator, and some fairly melodramatic media headlines on the back of it, manufacturing remains in good health. This is backed up by official data as well as what we are hearing from our members. Risks do remain, as they always do, and not just regarding the B-word. Indeed, given the health of the sector and the global economy, we are concerned that the corresponding rise in investment is not great enough to cement this growth in the future. Investment is up, but not by as much as one would expect given the positive environment…the cause? Ohh damn back to the B-word.


Keep an eye out for the results of our 2018q1 Manufacturing Outlook Survey, out on Monday the 5th of March. Lee will be blogging on the key findings and trends in the report.



This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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