Manufacturing turns a corner, but stronger performance required to compensate for services sector headwinds - EY ITEM Club comments

2 May 2017

  • Share
  • Q2 kicks off with manufacturing PMI at a three-year high
  • With output, new orders and employment all picking up
  • But the small size of the manufacturing sector means strength will struggle against services headwinds

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“Having dropped to a four-month low of 54.2 in March, the manufacturing PMI saw a surprise bounceback in April. A reading of 57.3 took the PMI to the highest level since April 2014 and well above the long-term average (since 1992) of 51.6.

“April’s strength was broad-based, with measures of output, new orders and employment all rising. The strongest growth in output was evident in the investment goods sector, while the biggest driver of new orders was the domestic market, with export orders also increasing. Meanwhile, one of the bugbears of recent surveys – rising cost pressures – showed signs of easing. While the survey’s input prices balance remained above the long-term average, the pace of increase eased to a nine-month low. However, reflecting time lags, output price inflation continued to rise.

“April’s CIPS survey offers some reassurance that the disappointing performance from manufacturers in Q1 may have turned a corner. That said, similar surges last year proved short-lived. With ‘the makers’ accounting for little more than 10% of GDP, it will require a strong performance from the sector to compensate for headwinds from inflation and other sources affecting the dominant services sector.”