UK PMI: Manufacturing falls to lowest level since Q2 2009 whilst prices surge

If John Major is right and the UK is in a ‘recovery’, then after reading the latest Markit/CIPS manufacturing report it is clearly one that is disguised as a deep and long depression.

From the report:

The downturn in UK manufacturing production extended into its third successive month in September, as order inflows remained lacklustre and job losses continued to mount. Cost pressures also surged higher on the back of the recent strengthening of oil, food and commodity prices.

So the BoE print like crazy (with more to come in November/December), which has fed through into ‘surging higher cost pressures’, which in turn has meant that job losses in the manufacturing sector have mounted, and we’re meant to be impressed by the way the BoE has ‘saved the economy’?

It get’s worse:

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) edged lower to 48.4 in September, from 49.6 in August, to remain below the no-change level of 50.0 for the fifth month in a row. The average PMI reading over Q3 2012 as a whole (47.7) is the lowest since Q2 2009.

So the 3 month average for the PMI index is now lower than right at the height of the ‘previous’ recession.

That’s falling output and rising costs. Ouch.

And worse:

Cost pressures surged higher in September, with the rate of increase in average purchase prices hitting a six-month peak. This was attributed to the rising cost of chemicals, energy, foodstuffs, metals, oil and plastics. Average selling prices continued to edge higher in September. However, the rate of charge inflation was the lowest in eight months, as weak demand and strong competition restricted manufacturers’ pricing power.

So basically it’s costing manufactures more to make ‘stuff’ but they can’t/don’t want to pass this extra cost through to their customers, which brings us back to a theme we often talk about here. Margin compression. This can only go on for a relatively short time before manufacturers are forced to push through the extra costs to the customer or cut costs through redundancies. Look for a nice spike in the CPI in the coming months.

And even worserer:

September saw further job losses implemented at manufacturers. Staffing levels fell for the fifth successive month, with the rate of reduction the steepest since November 2011. Companies linked job losses to tough market conditions, lower production and the presence of spare capacity. Backlogs of work fell for the twentieth month in a row.

If you can’t pass thorough those extra costs to consumers then sooner rather than later you’re going to have to make cuts in staffing levels. Also look for those unemployment numbers to start going the wrong way very soon.

Finally the extra bank-holiday excuse has been laid bare for what it always was, complete and utter nonsense:

After an initial rebound since activity was hit by the extra holidays for the Queen’s Diamond Jubilee in June, a downward trend in the rate of output growth is again evident. The survey data are consistent with manufacturing output falling sharply, at a quarterly rate in excess of 1% in September. At that pace, the sector could dampen economic growth severely and keep the economy in recession.

So basically without the excuse of an extra bank holiday to pin the poor numbers on we’re back to reality:

Job losses are mounting again as a result. A steep rise in raw material costs does not help, linked to rising oil and agricultural commodity prices in particular, which manufacturers sought to offset by cutting labour costs via job losses.

AKA – MArgin compression. And NO-ONE could’ve seen this coming.

And just how will the BoE respond to these rising prices costing jobs? Yup, you guessed it, more money printing.

Related posts:

1. As PMI falls to it’s lowest level this year ‘factory gate’ inflation hits a 7 month high
2. Gold Bullion Sales Surge in Early Months 2009
3. Gold jewellery loses glister as prices surge
4. UK manufacturing PMI plunges at second fastest pace in 20 years – so will the Bank of England print next week in response?
5. Gold price falls to $1645 level – trading back below the 200 daily moving average

Link to this article: : http://www.goldmadesimplenews.com/analysis/uk-pmi-manufacturing-falls-to-lowest-level-since-q2-2009-whilst-prices-surge-8200/

Posted by Thomas Paterson on Oct 1 2012. Filed under Analysis. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.