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1 March 2013updated 22 Oct 2020 3:55pm

Manufacturing returns to contraction

One phrase is on everyone's mouths, and it rhymes with schmiple schmip.

By Alex Hern

It’s the first of the month, and that means it’s PMI day, our chance to find out the first indication of how the economy performed in the last month. Our first indication is: it performed badly.

The Markit/CPS manufacturing index, which provides an indication of activity across the manufacturing sector, fell markedly, recording 47.9 down from 50.5 last month. A number below 50 indicates contraction in the sector, and this is the first time manufacturing has posted such a result since last November:

 

Markit adds:

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New orders fell for a second successive month – and at an accelerated pace. The latest fall was the sharpest since last July amid reports of tough market conditions both at home and abroad. Poor weather was also mentioned as a factor negatively impacting on order book volumes.

Compared to last month’s mildly positive figures, the news is bad indeed, and it’s led to a strong sell-of in sterling amid fears it indicates a return to rescission for Britain. Here’s GBP/USD:

 

and GBP/JPY:

 

Ouch. Chris Williamson, Markit’s chief economist, writes:

The return to contraction of the manufacturing sector is a big surprise and represents a major set- back to hopes that the UK economy can return to growth in the first quarter and may avoid a triple-dip recession.

The data so far this year point to manufacturing output falling by as much as 0.5%, meaning a strong rebound is needed in March to prevent the sector from acting as a drag on the economy as a whole in the first quarter.

The one positive note was that the market in investment goods strengthened slightly, a necessary improvement if the economy is to improve in the long-term.

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