- The manufacturing PMI fell for a second successive month in July. But a dip in the index was always likely given supply chain disruption and an easing in post-lockdown pent-up demand. And a PMI of 60.4 remained comfortably in expansionary territory.
- Consumer spending on previously unavailable services rather than goods could weigh on the PMI in the short-term. But, while cost pressures facing manufacturers stayed strong, there were tentative signs the worst may be past.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“July’s manufacturing PMI of 60.4, down from 63.9 in June, confirmed the cooling signalled by the earlier identical ‘flash’ reading. This was the second successive monthly fall and left the PMI at its lowest since March. However, July’s PMI was still well above the long-run average of 51.8. And some slowdown had always been likely given a combination of supply chain disruption and an easing in pent-up demand following the lifting of COVID-19 restrictions.
“Consumers are now freer to spend on previously unavailable services which implies softer spending on goods. This could weigh on manufacturing output as spending patterns move closer to normal. That said, a full return to normality may be far off. A persistent shift to home working would imply persistently less spending on commuting and eating out, while lingering concerns about COVID-19 could hold back spending on some consumer services. So, the fillip to spending on goods delivered by the pandemic may not fade away entirely.
“Meanwhile, the IHS Markit/CIPS survey offered some tentative evidence that pipeline inflationary pressures faced by manufacturers may have peaked. Respondents continued to report sizeable cost pressures arising from raw material, staff and skill shortages. But the survey’s measure of growth in the cost of manufacturers’ inputs fell back from June’s record pace.”