Manufacturing upturn supports job creation

Wednesday 2 April 2014

Contractors in the manufacturing sector can look forward to full workloads over the coming months as the industry strengthens.

The latest Markit/CIPS UK Manufacturing Purchasing Manager's Index showed a marked upturn, which is supporting job creation.

Production and new orders increased with "robust clips" last month, rounding out the first quarter of the year on a high.

Output also grew over the 12 month period, thanks to the increase in new orders. However, rates of output and new business cooled from the highs of the second half of 2013.

Demand is primarily coming from the domestic market, which has been the main source of new contract wins. However, new export orders weakened in March. Indeed, the slowest pace of growth in ten months was recorded, reflecting higher demand from Europe, North America, China, the Middle-East, Brazil and Australia.

Price pressures eased, as average input costs fell. This is the first time this has happened in over one-and-a-half years. According to the report, this reflects the reduced prices of commodities, energy and metals.

A seven-month low was noted for output charge inflation, as strong competition and lower purchasing costs put off price hikes among some manufacturers.

Overall, the Purchasing Manager's Index dropped to 55.3 - an eight month low. Nevertheless, this is above the long-term average of 51.4.

This has served to improve job creation, with employment rising for the 11th consecutive month. The rate of growth also stayed near February's three-year hire, showing a continued appetite for hiring among manufacturers.

It is believed this is the result of rising production and demand requirements in all three market groups. The increase in capacity saw a stagnation in backlogs of work in March.

Rob Dobson, senior economist at survey compilers Markit, said: "Growth is merely hot rather than scorching, and the take home messages from the March survey are that the recovery remains solid and continues to drive strong job creation.

"Even with the slower pace of expansion, the goods-producing sector is on course to provide a further boost to the overall economy in the first quarter, for which we expect the economy to grow by at least 0.7 per cent."

Now is not the time to get cocky, however. The downturn in export growth shows that the UK continues to be "all-too reliant on domestic consumers", Mr Dobson explained.

A cautious eye still needs to be cast over the sector and the skills shortage continues to be a concern.

Vendor delivery times are also still lengthening, albeit at a more stable rate.

Yet jobs are being created at a pace not seen in recent decades and there are signs there is a "rebalancing process" underway.

"We may be still a consumption-oriented economy in many respects, but at least we now appear to be producing more of the goods we sell ourselves, which is a more sustainable situation to be in," Mr Dobson said.

Output is also in line with current Bank of England monetary policy, indicating little cause for concern.

By Victoria McDonnell

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