GB: CIPS/PMI Manufacturing Index

Tue Jan 02 03:30:00 CST 2018

Consensus Actual Previous
Level 58.0 56.3 58.2

UK manufacturing looks to have had a decent December, although the rise in business activity still fell short of market expectations. At 56.3, the headline PMI was down nearly 2 points versus November's 51-month peak but still high enough to suggest another month of above average growth.

Indeed, output, new orders and employment all recorded solid further advances and production in the intermediate and investment subsectors actually accelerated. Order books were supported by strong demand from overseas, inevitably helped by sterling weakness. Backlogs were also modestly higher and sentiment about the year ahead remained positive.

Inflationary pressures were again quite marked although the rise in input costs was the smallest in four months and reflected mainly more expensive raw materials rather than higher wages. Factory gate prices were up for the twentieth month in a row.

Given all of the uncertainty surrounding Brexit, the December PMI results should be seen quite positively. They are also consistent with the latest CBI Industrial Trends Survey which similarly pointed to generally upbeat sector developments. Today's report puts the average PMI reading over the final quarter of 2017 at 57.0, the best since the second quarter of 2014.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The survey covers more than 600 industrial companies and is compiled by the Chartered Institute of Purchasing and Supply (CIPS) and Markit.

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.