By Daniel Hunter
The UK manufacturing sector showed signs of stabilising at the start of the second quarter of 2013, as levels of production and new orders rose slightly after contracting in the prior two months.
At 49.8 in April, up further from February’s four- month low, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) signalled little change in overall operating conditions in the sector, following contractions in the prior two months.
Apart from the mild gain in new contracts, the modest recovery in production volumes also reflected efforts to clear backlogs of work. Output growth was centred on the consumer and investment goods sectors, although the rate of contraction at intermediate goods producers also eased.
Manufacturers benefited from a modest improvement in new export order inflows, which companies attributed to increased sales to clients in North America, the Middle East, Latin America and Australia. The level of new export work received rose for the first time in over a year and at the fastest pace since July 2011. However, demand from the euro area remained lacklustre.
After rising for seven successive months, April saw a slight decline in average purchase prices. Companies reported paying lower commodity and fuel prices. However, a number of firms continued to report higher costs for chemicals, food products and plastics. The ongoing weakness of sterling also contributed to increased import prices.
Average output charges rose further in April, taking the current sequence of increase to three-and-a- half years. There were reports of manufacturers acting to protect operating margins and pass on cost increases incurred earlier in the year. However, the rate of charge inflation eased to a five-month low, reflecting ongoing price competition in domestic and export markets.
Manufacturing job losses were recorded for the third straight month in April. A solid reduction in headcounts at intermediate goods producers more than offset higher employment in the consumer and investment goods sectors. However, the overall rate of job loss was only marginal and weaker than in the prior two months.
UK manufacturers maintained a cost cautious approach to purchasing and stock holding decisions during the latest survey month, with April data signalling further reductions to input buying volumes and holdings of both pre and post- production inventories. However, the rate of decline in purchasing activity eased sharply over the month.
“A march of the makers may be on its way following the first rise in export sales for a year with the Americas, Middle East and Australia making up for lacklustre demand in Europe giving the manufacturing sector something to savour," David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply said.
"The sector’s steady performance in April, which saw an increase in output, was supported by easing prices for fuel and commodities, which is welcome news. However, increased prices elsewhere and the weak currency are a reminder of the difficult economic conditions which remain.
"The consumer goods sector is leading the revival in response to overseas demand and an improved performance in the investment goods industry bodes well. Intermediate goods, the bellwether of the sector, continue to struggle, but even their outlook has improved. Across the board, firms have increased their output prices, signalling some confidence in the sector, as they look to recoup Q1 losses and protect their profit margins.
"We should not forget that the sector is not in rude health. A weak Q1 has led to continued job losses in April reminding us that the tough times will undoubtedly continue. Businesses remain cost cautious, but the latest figures are at least a chink of light in the tunnel.”