Outlook: Cost pressures start to impact on manufacturers

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FROM THE 2ND FEBRUARY INTELLIGENCE REPORT:

The latest Purchasing Managers’ Indices for manufacturing show that manufacturers around the world are starting to feel the pressure from increased costs. While some are still able to absorb these costs in a growing economy, for others it is starting to weigh down on their ability to grow. Although the IHS Markit/CIPS UK Manufacturing PMI was still at a very strong 55.3 in January, this was down on December’s 56.2. This was also the lowest level since June suggesting that demand from UK manufacturers for material may ease back if this trend continues over the coming months.

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Despite this, manufacturing output in the UK continued to grow, albeit at the slowest pace in six months. As a result of increased export demand, there was more demand for raw materials that resulted in input cost inflation. Indeed, purchasing prices for raw materials grew at the fastest rate in 11 months. Metals, paper and plastics were all reported to be in good demand from UK manufacturers, and may explain why some recyclable material grades have held up despite the situation in China. Although down slightly on December’s
record 60.6, at 59.6 in January, the ISH Markit Eurozone PMI was still very high. The Netherlands hit a record high of 62.5, while Austria and Germany eased back slightly to 61.3 and 61.1 respectively. Italy hit a 83-month high of 59.0, while France was at a 2-month low of 58.4.

Eurozone manufacturers continue to see very strong production and new orders with both domestic and export markets proving strong. Manufacturers in these countries noted purchasing costs rising at the greatest extend for six and a half years with shortages developing for some inputs. US manufacturing grew in January to 55.5 from 55.1 in December. Manufacturers here saw the strongest new order book from both domestic and export markets since January 2017. However, there were also reports of input costs rising rapidly with raw materials in particular adding to manufacturing costs. Pre-production inventories accumulated at the fastest pace in 12 months. China’s official PMI fell to 51.3 in January from 51.6 in December. But the raw material index increased to 48.8 from 48.0, suggesting more need for material.

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