Economic Updates

Posted on: November 3rd, 2020 by EditorP

October Manufacturing PMIs

This bulletin contains details of the October manufacturing PMIs for the UK and Eurozone. 

UK Manufacturing growth sustained in October
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® fell slightly to 53.7 in October, from 54.1 in September, but remained well into the expansion zone, where it has now been for five consecutive months.
Output growth reflected stronger new work intakes as well as companies catching up on orders delayed during the last lockdown. New export business strengthened, with demand increased from China and the US. However, respondents also noted a temporary boost from Brexit stock building by EU clients. 
Intermediate and investment goods industries both saw marked expansions of both production and new order volumes in October. The consumer goods sector, however, slipped back into contraction, with both output and new business falling. 
Manufacturing employment declined for the ninth successive month in October, with the rate of job losses accelerating. Companies linked lower staffing to redundancies, recruitment freezes, the non-replacement of leavers, cost reduction strategies and workforce restructuring. The steepest rate of job cuts was in the consumer goods industry. 
There were continued signs of surplus capacity across manufacturing as a whole, with further ‘solid drops’ in work-in-hand levels. 
Input cost inflation accelerated to the highest since end 2018, reflecting higher raw material costs, input shortages and increased prices from suppliers. Manufacturers partially passed on higher costs in output charges.
More than 60% of surveyed companies expect output to rise over the coming 12 months; 10% forecast a decline. Positive sentiment reflected hopes of economic recovery and a reduction in COVID-19 disruption, although it should be noted the survey predates the latest England lockdown announcement. Firms continued to express concerns about the potential impact of Brexit uncertainty. 

Eurozone manufacturing growth continues to strengthen
The IHS Markit Eurozone Manufacturing PMI® indicated a further improvement in manufacturing sector growth across the Eurozone during October. The seasonally adjusted headline index read 54.8, up from 53.7 in September – the strongest reading for more than two years, extending a run of continuous growth that began in July.
Growth was reported across all three industry sectors, although to varying degrees. The fastest expansion was seen in investment goods, where growth improved to its highest level for over two years. A solid gain was seen in intermediate goods, but growth weakened to a marginal pace amongst consumer goods producers.
Germany’s PMI reading improved to a 31-month high rating of 58.2, followed by Austria (54.0), Italy (53.8), Spain (52.5), France (51.3), Netherlands (50.4), Ireland (50.3), and Greece (48.7). 
Overall manufacturing production showed a stronger rate of growth, and there was a similar strengthening of new order, both led by Germany. 
Cost inflation was at the fastest rate in 20 months, with firms passing on a proportion of input costs in a marginal increase in output charges – the first since summer 2019. 

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