Manufacturing output expands rapidly in early 2013

2 min read

Figures released today show that manufacturing production continued to expand at the start of 2013, a sign that the sector could help lift the economy from a slide back into contraction.

The expansion follows a further increase in new orders and ongoing efforts to clear backlogs of work. The labour market also continued to stabilise following the job losses seen through much of the middle of 2012.

At 50.8 in January, edging lower from December’s 15-month high of 51.2, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) remained above the neutral 50.0 mark for the second month running.

According to a statement, this mainly reflected an increase in consumer goods production, although output also increased at intermediate goods producers. In contrast, investment goods output fell for the eighth time in the past nine months.

Companies reported a marginal increase in new orders for the third successive month, which some attributed to improved inflows of new business from the domestic market.

Clearing backlogs

This offset a further reduction in new export orders, which fell for the 13th month in a row. Companies linked lower volumes of new work from overseas to the ongoing weakness of markets in mainland Europe.

With new orders rising only marginally during the latest survey month, companies supported production volumes through the depletion of backlogs of work.

Outstanding business declined at a substantial pace and there were also reports of companies settling existing contracts from inventories, leading to a reduction in finished goods holdings for the 10th month running.

Average input prices rose for the fifth successive month in January, with costs rising across the consumer, intermediate and investment goods sectors.

Companies also reported higher prices paid for chemicals, energy, food products, metals, packaging and plastics, which was partly passed on to clients in the form of higher average selling prices.

Stephen Cooper, KPMG’s UK head of manufacturing, added: ‘In terms of Europe, the UK still has the shadow of the eurozone debt issues looming over it, as the eurozone is still the UK’s biggest export market. 

‘Looking at the wider global manufacturing sector, the US yesterday reported a 0.1 per cent shrinkage in economic activity, which is the first contraction in recent months. With the US being a major world market, this is hopefully a temporary situation, as they reported that some of this contraction was due to weather-related disruptions.

‘In Asia, the rise in China’s latest PMI for the third month in a row offers some hope as it indicates that factory output is accelerating, which may mean better economic performance for Asia in coming months, and may link through to an increase in UK exports to Asia.

‘The UK manufacturing sector is contending with challenging domestic and global factors at an uncertain and fragile time for the global economy.’