The growth in demand for
In the three months to July, manufacturers’ total new orders grew at the slowest rate since last autumn, with export order volumes falling noticeably for the first time in eighteen months. Demand growth remains above average, however, when compared to the last decade.
Firms' total order book levels have also dropped, relative to 'normal', after a run of improving responses from +2% in April, +5% in May and +8% in June to -6% in July. Export order book levels also eased.
Prices of manufactured goods continued to rise, but more slowly than in January or April. And with costs reported to have risen as rapidly as in October, manufacturers were not able to repair profit margins as previously. Export prices remained broadly unchanged.
Manufacturing output grew more slowly than expected, with further modest growth predicted for the next three months. When asked to compare the general business outlook to three months ago, roughly as many were optimistic as were pessimistic.
Volumes of total new orders rose over the past quarter for a balance of +7 per cent of firms, which disappointed expectations and came below April’s peak of +12%. The growth in new orders remains above the long-term average however.
The best expectations for output growth in two years failed to materialise, with slightly slower growth (+3%) than in April (+6%). The slowdown was most marked in capital goods, such as heavy machinery. A balance of 10 per cent expects the volume of overall manufacturing output to increase over the next three months.
Having so far resisted the weaker dollar and a slower US market, export order volumes fell this quarter for a net balance of -5 per cent of firms. Sentiment regarding export propects in the coming year is little changed from three months ago however, and firms are no more concerned about world political or economic conditions than they were in April.
Export prices stayed broadly unchanged and are expected to remain so. But an above average proportion of exporters said delivery dates are likely to limit their business, which may reflect pressure from tighter shipping capacity and soaring freight rates.
There was an easing back in the rate of increase of domestic prices (a balance of +10%), with slower rises in the prices of consumer and intermediate goods (such as building materials, fibres and chemicals). Expectations are that prices will increase at a similar rate.
Unit costs showed an unexpected bounce back last quarter, with a balance of +24 per cent reporting an increase. Rises in the prices of oil, commodities and freight since April have all contributed.
The proportion of firms working below capacity fell further, to a level not seen for a year but the proportion with capacity at least adequate to meet demand rose slightly, to +89 per cent.
Investment intentions are picking up, however, with an improvement seen across every category. Greater investment is planned for training and for product and process innovation. The least negative balances in at least three years were recorded for intended investment in buildings (-14%) and plant and machinery (-6%).
As a constraint to output, however, skilled labour is cited by the largest proportion of firms since 2001.
Fewer manufacturing jobs were lost than expected, a balance of -9% compared to the expected -16%. Firms now have the most modest expectations for the decline in employment since July 2004. Based on the survey, the CBI estimates 5,000 jobs were lost from the sector in 2007 Q2, and that 8,000 will be lost over Q3, bringing the total employed in manufacturing to 2,947,000.
Sentiment about the general business situation and about exports prospects for the year ahead were flat, following an improvement in April.
The CBI’s Chief Economic Adviser, Ian McCafferty said: ‘While the recent manufacturing growth looks to have moved down a notch, we should not be speculating about an end to this year’s manufacturing recovery.
‘Many signs point to a fairly healthy outlook for manufacturers, with improved investment plans across the board and markedly slower falls in employment.
‘UK exports had been resolute in the face of a strong pound for a number of months but a combination of a slower US economy and sharp increases in the price of oil, commodities and freight is beginning to tell for exporters.’
PMI falls as manufacturers feel the squeeze
17 months or two and a half years - which is it?