LONDON, July 1 - Following is the full text of the latest CIPS/' purchasing managers' index for the UK manufacturing sector released on Tuesday:
OUTPUT AND ORDER BOOKS RECORD MARGINAL GROWTH IN JUNE, ALTHOUGH THE PMI REMAINS BELOW 50.0.
The seasonally adjusted Purchasing Managers' Index (PMI) rose to 49.2 in June, up from a revised level of 48.3 the previous month. However, having remained below the no-change mark of 50.0 since last December, the headline index suggested an overall contraction of the UK manufacturing economy for the seventh consecutive month. Nevertheless, the latest survey of panel firms did point to marginal growth of both output and order books in June, with production rising for the first time in the past four months whilst volumes of new business rose for only the second time since the end of 2002. Helping to support the growth of order books in June, firms reported that demand from abroad had risen. The volume of export business was up for the first time since January and reports suggested that firms were experiencing a favourable exchange rate effect on business from the Eurozone (although the strength of sterling against the US dollar was hitting demand from the US).
Exchange rates were also reported to be affecting input prices in June. Average prices paid for raw materials and semi-manufactured goods fell slightly for the first time since November 2002 and firms importing goods priced in US dollars continued to report the relative cheapness of doing so. Meanwhile, a number of panellists indicated that the cost of certain plastics and polymer products was down since the previous month. Lower input prices meant that panel firms had greater scope to use output prices when trying to stimulate demand. Average charges amongst panel firms fell slightly for the first time since January. Despite the fall in average prices for inputs (and the rise in output and order book volumes), purchasing activity continued to be cut in June. Panellists indicated that they were not ready to start rebuilding inventories, generally reporting that such action would be an inefficient use of resources. Stocks of purchases were down for the forty-second consecutive month in June, whilst stocks of finished goods shrank for the thirty-ninth month running.
Although purchasing activity continued to contract, suppliers were still reported to have underperformed (relative to established lead-times). A lengthening of average delivery times was recorded for the sixteenth consecutive month as panel firms indicated that suppliers were continuing to shed capacity in line with the weakness of demand. However, the degree to which lead-times lengthened was only very marginal. Employment continued to contract in June. The latest data suggested that manufacturing staffing levels have fallen in each month since November 1999 and anecdotal evidence from the survey panel has continued to suggest that, in a number of cases, staff cuts have reflected a need to operate more efficiently. The latest downsizing of the manufacturing workforce was recorded despite firms signalling improvement to both output and order books. Efforts to increase productivity have long been heralded as vital by panel firms looking to keep costs down and operate within tight margins.
OUTPUT
The seasonally adjusted Output Index rose above the 50.0 no-change mark in June, signalling growth of manufacturing production for the first time in the past four months. Furthermore, the index recorded its highest level since last December, rising to 50.3 (from an upwardly revised 48.6 in May). Although the pace of growth was only marginal, the decision to raise output was backed up by reports of improved order books in June.
ORDER BOOKS
After some minor revisions to the calculation of recent seasonal trends, the latest data on manufacturing order books showed marginal growth for the second time in the past three months. As well as breaking back above the 50.0 no-change mark in June, the seasonally adjusted New Orders Index also recorded its highest level in the past seven months, rising to a level of 50.4.
EXPORT ORDERS
June's seasonally adjusted New Export Orders Index signalled marginal growth of new business from abroad for the first time since January. The index recorded 50.5, and this compared to an upwardly revised level of 49.1 in May. There were reports from a number of panel firms which suggested that business within the Eurozone had generally continued to improve, following more favourable exchange rates for UK exporters.
BACKLOGS OF WORK
The seasonally adjusted Backlogs of Work Index continued to signal the existence of excess capacity in the UK manufacturing economy during June. Although the index rose sharply, at 46.3 it remained well below the no-change mark of 50.0, as it has done throughout the three-and-a-half years in which these data have been collected.
STOCKS OF FINISHED GOODS
Panel firms continued to report that they were keen to run-down excess capacity in June and measures to do so included the deliberate depletion of inventories. The seasonally adjusted Stocks of Finished Goods Index was below the critical no-change mark of 50.0 for the thirty-ninth consecutive month, falling to a level of 46.8 in June, as panel firms reported that contingency stocks continued to be viewed as an inefficient allocation of resources.
EMPLOYMENT
The seasonally adjusted Employment Index signalled the contraction of manufacturing staffing levels for the forty-fourth consecutive month in June, primarily reflecting the efforts of panel firms to improve efficiency by trimming excess capacity and increasing productivity. However, the index did rise sharply from the May level, up to 47.9 (its highest since last July) from a revised 45.0 in May.
OUTPUT PRICES
June's seasonally adjusted Output Prices Index signalled a slight contraction of average charges in the UK manufacturing economy, following four consecutive months of very weak inflation. The index fell from 50.4 in May, to 49.5, and the decision to lower charges was generally associated with the difficulties firms were having in securing new business.
PRICES
A marginal decline in average input prices was recorded in June, as signalled by the seasonally adjusted Input Prices Index (which fell from a revised level of 51.9 in May, to 49.8). The fall in the index was the third in succession, although June's reading was the first below the 50.0 no-change mark since last November. Helping to push prices lower, a number of firms indicated that they had benefited from the strength of sterling against the US dollar.
SUPPLIERS' DELIVERY TIMES
Average supplier lead-times were largely unchanged in June, although a further slight lengthening was recorded. The seasonally adjusted Suppliers' Delivery Times Index rose for the second consecutive month, reaching a level of 49.9. The index has been below the 50.0 no-change mark for sixteen successive months, as panellists have continued to suggest that suppliers have been cutting capacity in line with the sustained weakness of demand.
QUANTITY OF PURCHASES
The seasonally adjusted Quantity of Purchases Index remained below the no-change mark of 50.0 in June, signalling reduced volumes of input buying for the seventh consecutive month (albeit at the least marked pace during that period). Cuts in purchasing activity continued to reflect efforts to keep costs down and there were reports which suggested that firms were keen to utilise existing resources more efficiently.
STOCKS OF PURCHASES
Falling inventories of raw materials and semi-manufactured goods were signalled for the forty-second consecutive month in June. Moreover, compared to May, the rate of contraction picked up sharply and the seasonally adjusted Stocks of Purchases Index fell to 43.7, from a downwardly revised level of 45.7. The deliberate depletion of inventories was commonly reported to reflect measures to control costs through improved efficiency.
CONSUMER GOODS INDUSTRIES
After manufacturers of consumer goods indicated a marginal contraction of output during May, production in the sector recovered in June. Moreover, growth of output was backed by increased growth of incoming new business. Order books improved for the ninth time in the past ten months (having fallen sharply in March), and the latest growth also reflected increased export volumes (for the first time since February). Despite the sustained growth of order books and the related improvement in output, firms continued to cut purchasing activity in June. Inventories were allowed to fall and firms reduced staffing levels as well, reflecting efforts to lower costs. Price inflation continued to slow sharply.
INVESTMENT GOODS INDUSTRIES
The sectoral breakdown of the latest manufacturing data showed that the investment goods sector was the worst performer in June. Output fell at the sharpest rate for three months and order books contracted slightly (after recording only minor growth in May). Weakness of demand was reported to reflect the current low levels of capital spending in the private sector, although export order books strengthened for the third month running. Employment continued to be cut in June, at a rate unchanged since the previous month. Panel firms have shed staff in each of the past fifteen months, largely in line with falling output (which has contracted for thirteen of the past fourteen months).
INTERMEDIATE GOODS INDUSTRIES
Of the three broad sectors being monitored here, it was intermediate goods sector which was the best performer in June. Output rose for the first time in the past four months, and at the strongest rate since last August. Growth of production reflected stronger order books in June, although demand from abroad weakened slightly. Overall, incoming new business picked up for the second month running, and at the sharpest pace in the past ten months. Nevertheless, purchasing activity continued to fall in June, although the rate of decline was only marginal (and far less sharp than had been recorded during May). Average input prices fell for the first time since April 2002.//