UK Manufacturing saw a big improvement throughout March as efforts to build safety stocks in preparation for Brexit led to a record increase in inventories of both purchases and finished goods.
The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to a 13-month high of 55.1 in March, an increase from 52.1 in February (originally reported as 52.0). The PMI has stayed above the 50.0 threshold for 32 months in a row.
Companies stepped up production to build-up inventories in advance of Brexit, and also met rising inflows on new work. New business also improved from both domestic and export markets.
The rate of increase in stocks of purchases hit a survey-record high for the third month running in March, with capital, consumer and intermediate goods inventories also rising at a series high.
Raw material shortages, inflationary pressures, Brexit and higher energy costs were all factors underlying a further increase in average purchasing prices throughout March.
Manufacturers signalled that part of the rise in costs was passed on to clients in the form of higher selling prices, although the pace of output charge inflation fell to a 32-month low.
March saw pressures on manufacturers’ supply chains, as lead times lengthened for the 42-successive month. Firms linked this to ongoing capacity pressures at vendors, strikes and delays at the Calais Channel crossing and strong demand for raw materials.
Brexit worries continued throughout March and although the overall degree of optimism moved slightly higher, it remained subdued compared to that seen earlier in the series history.
Companies indicated that future output growth may be constrained as the current strong pace of inventory building at both manufacturers and their clients is unwound over the coming year.
However, 45% of survey respondents forecast output to be higher one year from now. This positivity was linked to improved demand, new product launches, entering new markets and reduced Brexit uncertainty in the future.
Operating conditions for US manufacturing showed a moderate improvement throughout March, dropping to its lowest level since mid-2017 amid softer increased in output and new orders.
The PMI posted at 52.4, down from 53.0 in February. This is due to the rate of expansion easing to a marginal pace that was the weakest since June 2016, and below the series trend.
Panellists said that the slower increase in production was down to a softer underlying client demand.
New business growth eased in March, and total new order expanded at a modest pace that was the slowest since June 2017.
During the same time, new export orders increased, although at the weakest rate for five months, with businesses stating that global trade tensions and the ongoing impact of tariffs had reduced foreign client demand.
Panellists registered the softest rise in input purchasing since June 2016, and where an increase was reported, companies linked this to the renewal of stocks.
Input price inflation softened further to the slowest since August 2017, and where a rise in costs was seen, goods producers linked this to higher raw material prices, stemming from the ongoing impact of tariffs and demand for input.
The increase was partly passed on to clients through higher output charges.
Eurozone manufacturing operating conditions fell to the greatest degree for nearly six years in March.
After taking in seasonal factors, the PMI posted a level of 47.5, down from 49.3 in February. This is the lowest level since April 2013. It also marked the second continuous month that the PMI posted below the 50.0 threshold.
Weakness in March was centred on the intermediate and investment goods sectors, with both categories registering notable declines in conditions, which was in contrast to consumer goods, where growth was recorded.
The region’s three biggest economies all recorded sub-50.0 readings, and the overall downturn was led by Germany, where conditions fell to the lowest level in over six-and-a-half years (44.1).
Italy also fell to a near six-year low (47.4), while France returned to contraction, recording modest growth 49.7, and Greece witnessing its sector enjoying the best month of growth in a year (54.7).
This underperformance was linked to a falling demand environment, as order books contracted to the greatest degree since 2012, and export orders were down at the sharpest rate since 2012.
The decline in demand weighed on production, with output falling at a marked and accelerated rate.
Production was increasingly used to serve existing orders, and firms were able to add their warehouse inventories, which rose slightly in March for a sixth successive month.
The declining production and new orders in the Eurozone showed signs of spilling over into the labour market during March.
Manufacturers also decreased their purchasing activity this month, and data showed the biggest net reduction in input buying for nearly six years, with firms stating a preference for using up existing inventory.
Input cost pressures continued to soften as signalled by the weakest rise in input prices for over two-and-a-half years. This trend was also seen for output charges as inflation eased to the slowest rate since November 2016.
China’s PMI registered at 50.0, an increase of 1.3 from February.
The main raw materials inventory index was 48.4, an increase of 2.1 from last month, and still lower than the threshold.