GB: CIPS/PMI Manufacturing Index

Thu Mar 01 03:30:00 CST 2018

Consensus Actual Previous
Level 55.0 55.2 55.3

The sector PMI pointed to little change in manufacturing conditions in February. At a marginally firmer than expected 55.2, the headline reading dipped to an 8-month low but was still only a tick short of its unrevised January mark and indicative of a reasonably good month for business activity.

Output expanded at its slowest rate in eleven months, reflecting a broad-based cooling amongst the major subsectors, but new orders growth picked up on the back of a stronger domestic market. Exports remained solid but the increase here was the smallest in four months. With business confidence holding close to January's 28-month peak, employment saw its second fastest growth since mid-2014 and this was enough to accommodate a second consecutive fall in backlogs.

Input costs rose sharply during the month, mainly due to more expensive commodities and other raw materials. In turn, part of this increase was passed on via higher output charges. However, rates of inflation for both price measures were slower than in January.

The PMI results are not too different from the February CBI Trends Survey which painted a similarly mixed picture. Overall, the impression is that activity rates have settled down at a lower level than seen over the second half of last year but they remain high enough to ensure a positive contribution from the sector to real GDP growth. There is not much here to stop the BoE tightening its monetary stance again within the next few months.

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.