US manufacturing improves, while UK and Eurozone fall behind

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Manufacturing warehouse
Manufacturing warehouse
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UK:

The UK manufacturing sector made a flat start to 2019 as trends in output and new orders slowed down.

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Companies reported that Brexit preparations led to a sharp rise in both purchasing activity and stockpiling of inputs at warehouses.

The headline seasonally adjusted IHS Markit/CIPS Purchasing Mangers’ Index (PMI) fell from 54.2 in December to 52.8 in January. This a three-month low and the second-weakest reading since July 2016.

Trends in production volumes was the weakest registered during the past two-and-a-half years, and although output rose solidly at consumer goods producers, it was largely offset by weaker expansion in the intermediate goods sector. It is the first decline in investment goods output since July 2016.

January saw a marked slowdown in the rate of expansion in new order inflows, with companies reporting an increase in output mainly linked to stock-building activity.

The rate of increase in new work from domestic sources eased, and growth in new export business fell to near-stagnation in January. Where growth in new orders was reported, it reflected clients purchasing to build up stocks in advance of Brexit.

This slight increase in foreign demand was linked to higher inflows of new work from the US, Europe, Brazil and Canada.

New business inflows decrease in both the intermediate and investment goods industries, although consumer goods producers continued to see good growth in total new work.

Inventory holdings increased at the fastest level in the 27-year survey history, as purchasing volumes expanded to the greatest extent since November 2017.

Higher demand for raw materials, along with input shortages and supplier capacity issues led to a marked lengthening in average vendor lead times during this month.

Inflation of input prices eased to a 32-month low, even with higher raw material costs, suppliers raising their prices and the exchange rate.

Selling prices also increased at a slower pace.

Outlook for the UK manufacturing sector remained positive in January, with nearly 46% of firms reporting that they expect output to be higher one year from now.

However, Brexit uncertainty, the exchange rate and signs of a European economic slowdown all were down to outlook. The overall degree of positive sentiment fell to a 30-month low.

US:

Operating conditions across the U.S manufacturing industry improved in January and was supported by faster expansions in output and new orders.

The PMI posted at 54.9, up from 53.8 in December, and signalled a strong and faster improvement in the overall health of the sector and was above the series average.

There was also a quicker expansion in production across the manufacturing sector, with the rise in output being the fastest since last September, and stronger than the series trend.

Output growth was down to greater client demand and efforts to clear backlogs.

The improvement in new orders accelerated and was steep overall, and the latest rise in new business extended the trend seen throughout the series history.

Evidence suggested that new client acquisitions and more favourable domestic demand conditions drove the increase.

The rate of new export order growth softened, with the pace being the slowest since last October.

Upward price pressures across the industry remained marked in January, and panellists continued to note that increased input costs were due to tariffs on steel and aluminium and demand for inputs. However, the rate of cost inflation was the slowest for a year.

Higher production requirements led to a further rise in buying activity, with many respondents stating a greater need to stockpile for future output.

Optimism in the industry was the second-highest since last May due to new client acquisitions and expectations of firmer demand conditions.

Eurozone:

Eurozone manufacturing operating conditions improved only slightly, and at the slowest rate for over four years at the start of 2019.

The PMI registered at 50.5, a decline from 51.4 in December. The headline index fell for the six consecutive month and stood in January at its lowest level since November 2014.

While producers of investment goods recorded a drop in operating conditions for the first time since July 2013, the consumer goods category continued to enjoy a solid increase in January.

The ‘big-four’ economies recorded the lowest manufacturing PMI readings during this month and continued to be in line with recent trends.

Germany entered contraction territory for the first time in over four years (49.7), while Italy’s PMI declined again from last month (47.8).

France (51.2) and Spain (52.4) increased its manufacturing growth from last month, while other nations recorded slower growth.

The Netherlands hit a 28-month low reading of 55.1.

Volumes of new orders placed with Eurozone manufacturers fell for a fourth successive month during January, with the rate of contraction also the sharpest recorded by the survey since April 2013 as domestic and international demand declined.

From this, manufacturers turned to existing orders to maintain production levels.

Output growth was low, and the weakest registered in the current 67-month run of expansion.

Average input costs continued to increase during January, but at a slower rate with inflation dropping to its lowest level for nearly two-and-a-half years.

With some reports of higher prices for foodstuffs and raw materials in general, manufacturers continued to increase their own charges.

China:

China’s PMI registered at 49.5, a small increase from last month’s figure of 49.4.

The main raw materials inventory index was 48.1, an improvement from December (47.1), but still lower than the 50 threshold. f