GB: CIPS/PMI Manufacturing Index

Thu Feb 01 03:30:00 CST 2018

Consensus Actual Previous Revised
Level 56.5 55.3 56.3 56.2

UK manufacturing apparently had a respectable, if less than dynamic, start to 2018. The sector PMI for January weighed in at 55.3, down from a marginally weaker revised 56.2 in December and somewhat short of market expectations.

Output growth hit a half-year low, although it remained solid enough, while new orders saw their smallest rise in seven months despite one of the strongest advances in overseas demand in the last four years. Sterling weakness continues to be a key factor here. At the same time, job creation was again solid and business optimism climbed to a 2-year peak.

Less promisingly, inflation signals reversed their recent trend decline. Input costs posted their sharpest gain in eleven months and factory gate prices their most significant increase in nine. However, the bulk of the damage was done by more expensive oil and other commodities as well as stronger global demand rather than higher domestic wages.

A mixed PMI report does little to make the BoE MPC's job any easier. Having already shown their preparedness to hike Bank Rate despite sluggish wage growth, today's prices update must increase the risk of another near-term monetary tightening. However, Brexit uncertainty is as high as ever and, at least so far, domestically generated inflation pressures remain quite benign. A return to split voting on the MPC is probably not very far away.

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.