Do you remember those cartoons? When a character runs over the edge of a cliff, it will look around for a second or so, look worried, and then fall. Yesterday, a report was released to suggest British manufacturing has run over that cliff. But the time for sitting in space looking around has ended. In June the manufacturing crash began.
The Chartered Institute of Purchasing Supply and Markit publish the purchasing mangers index every month. It is an important report, and for that reason we cover it most months. It is important, but a tad dull. Not much happens.
This changed in June, but, alas, for the worse.
The CIPS purchasing managers index fell from 49.5 in May to 45.8 In June. This is the lowest reading for the index since it began in 2001. A score of below 50 indicates contraction in the industry. Until April, the index had posted a score of 50 or higher every month for 45 months.
Worryingly, and a little surprisingly, the new export index collapsed too. Falling from 51.1 to 47.4.
As for inflation in the world of manufacturing. Well, we are afraid to say that if you combine this information with the woe described above, then a perfect storm is created.
The two indices, measuring prices paid by manufacturers and charged by them, hit new all-time highs. But the prices paid index continues to outstrip prices charged, meaning manufacturers are still swallowing much of their higher costs.
This could mean that down the line they will be forced to pass a higher proportion of their costs on to customers. So when oil does finally start to fall, and the prices paid index starts to drop, the prices charged index will probably continue to rise for some time.
Roy Ayliffe, Director of Professional Practice at the Chartered Institute of Purchasing and Supply, talked about the “relentless onslaught of ever weaker domestic demand, slower global economic growth and record cost inflationary pressure,” while Rob Dobson, Senior Economist at Markit Economics, referred to the “brutal combination of survey record cost inflation and weak domestic demand in June.”
In cartoons, whenever a character falls off a cliff, it tends to dust itself off and, bearing a few rapidly disappearing bruises, goes about its business. So, will it be like that for manufacturing? Mr Dobson said: “Output and new orders suffered their sharpest drops since late 1998, partly reflecting the ongoing downturn in the housing and credit markets. With conditions in these markets showing no sign of immediate improvement, manufacturing jobs cut at the fastest pace in three years and a series record fall in work-in-hand, times are likely to remain tough entering Q3. On the prices front, output charge inflation broke a new record high in June, which will raise further alarms on the MPC.”
Ummm, so that means No.
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