The Purchasing Managers’ Index (PMI) for manufacturing is one of the most closely watched surveys for hints on how the economy is shaping up. In April, it exceeded the expectations of most economists and went up to 57.3. It was at 54.2 in March, and this rise represents the fastest pace of manufacturing growth for three years. Any score above 50 shows that the manufacturing sector is growing.
Markit is one of the providers of the survey, and they commented that manufacturing saw a solid improvement in April. New orders came in at a faster rate than we’ve seen since January 2014. Most of the new business was from the UK domestic market, but there was a good increase in new export orders.
Reasons for the Improvement
There appear to be two reasons for the improvement in orders: an improved global economic climate and, of course, the fall in the value of the pound, which makes exports cheaper.
The PMI has several subcomponents, and all of these were positive. Not only did output, employment and new orders grow, but stocks of purchases grew at record pace for the survey. And suppliers increased their delivery times – a sign that they are busy and buyers are having to queue. For example, say an air conditioning firm requires a specialist part like a ductwork blast gate damper from http://www.dustspares.co.uk/Blast-Gate-Damper.html – they might have to wait slightly longer to obtain one.
Raw Materials Inflation Easing
The other effect of the fall in the pound is that imports, such as raw materials, become more expensive. However, this inflation has eased significantly since the new year.
Manufacturing is not the force it once was in the economy – it accounts for only 10% of the total – but the growth is still good news for the UK’s GDP figures, which were sluggish in the first quarter. The key question is whether the increase in growth will continue. It faces some challenges – in particular market volatility.
One of the underlying problems is that consumers simply don’t have much extra cash to spend, and the UK economy is very dependent on consumers buying goods and services. Because wage growth has been weak, consumer spending has also been weak, and this has meant that other growth spurts in the last year haven’t lasted very long.