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New manufacturing orders hit a sixty-nine month peak

“It appears that the manufacturing sector has turned a corner and is starting to put itself out of recession. After this long and deep downturn, manufacturers are now reporting strong growth in both output and new orders.” This comment by David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply (CIPS) was made in response to the latest Purchasing Managers’ Index (PMI) from CIPS and Markit published this morning.

 

The PMI showed a reading of 53.7 in October to rise above the “no-change” mark of 50, and reached its highest level since November 2007. There was a 3.8 point gain between September and October, which was the third largest in the history of this index.

 

The PMI headline figure gives an indication of operating conditions in the manufacturing sector with increases in the rates of expansion for both new work received and production. It was particularly pleasing that the growth in new orders was at its highest level for nearly six years.

 

Latest index shows factory output grew at fastest rate for two years.

Latest index shows factory output grew at fastest rate for two years.

According to David Noble: “One of the most positive developments noted by purchasing managers is that their clients are starting to restock inventories, which is encouraging them to restart production lines. This is important as it suggest the growth may be sustainable rather than a short term blip.” However, he did go on to say that there was a continuing lay off of workers and a turnaround in the labour market is still “some way off.”

 

But, what is particularly hard to understand, is that GDP fell by 0.4% in the third quarter. Given that the CIPS Index is very well regarded by both government and industry, how can they be so far apart? It may well be that the GDP figures are revised upwards when the next estimate for the third quarter is published. Could the UK actually have exited recession already? If that is so, the government needs to find a better way of evaluating GDP figures because the current figure has done nothing to encourage economic sentiment.

 

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Posted in GDP, Manufacturing, recession

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