GB: CIPS/PMI Manufacturing Index


Fri Jul 22 03:30:00 CDT 2016

Consensus Actual Previous
Level 47.6 49.1 52.1

Highlights
Brexit effects on manufacturing were not as marked as feared in the first part of July. At 49.1, the (one-off) flash PMI was down sharply enough from its unrevised 52.1 reading in June and at a 41-month low but still comfortably stronger than market expectations.

Nonetheless, the sub-50 reading means that activity was contracting and manufacturing output (49.1) as well as new orders saw their first outright declines since the first quarter of 2013. Employment was also cut for a seventh straight month. However, the slide in the pound clearly helped competitiveness and export demand saw its largest rise in almost two years.

That said, the counterpart to improving competitiveness was a sharp increase in input costs and inflation here climbed historically very rapidly and to its highest mark in five years. Output prices were raised as a result and factory gate inflation reached a 23-month peak as companies sought to limit the damage to profit margins.

Combined with the steeper decline in the flash services PMI (see calendar entry), the flash manufacturing results should be consistent with a 0.4 percent contraction in real GDP this quarter. The full Brexit effects have yet to be realised but the implications for falling output and rising inflation will do nothing to make the BoE MPC's job any easier. Financial markets will be disappointed should Bank Rate not be cut next month.

Definition
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.

Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.