Rising orders and growing activity bring ray of hope to manufacturing

Published on Monday 2 November 2009 21:06

MANUFACTURING activity grew last month at its fastest pace in almost two years as new orders expanded at a six-year record pace, further boosting recovery hopes.

Commentators were bold enough to talk of the sector "pulling itself out of recession," as the Chartered Institute of Purchasing & Supply's (Cips) purchasing managers' index (PMI) jumped to 53.7 in October, its highest level since November 2007. A score over 50 registers growth.

The jump from an upwardly-revised September score of 49.9 is the third-biggest monthly rise in the manufacturing survey's history.

The improvement was underpinned by a surge in new orders, with the index for this measure jumping 6.8 points on the month to 59.5, the highest since January 2004, when it sat at 61.5.

Cips chief executive David Noble said: "It appears that the manufacturing sector has turned a corner and is starting to pull itself out of recession."

Rob Dobson, senior economist at Markit, which works alongside Cips to produce the PMI series, added: "Looking ahead, the combination of rising new orders, lean inventories, high orders-inventory ratio and weak sterling all suggest that the sector should continue its recovery."

The survey noted "marked rebounds" in expansion rates for both production and new orders, although Noble warned that manufacturers remained "highly vulnerable".

Export levels also rose for the third successive month helped by a weak pound, although staffing levels in the sector fell for the 18th month in a row.

Some analysts questioned whether the survey was a reliable gauge of what is really happening in the economy.

Brian Hilliard, economist at Socit Gnrale, said: "It does change the balance of risks ahead of (this week's] Bank of England meeting, but we're still sticking with our forecast for more quantitative easing."

He said all eyes would be on the contents of tomorrow's PMI report for the services sector, which accounts for more than two-thirds of the economy.

IHS Global Insight's chief UK economist Howard Archer said: "The purchasing managers' surveys appear recently to have been overstating the strength of UK economic activity.

"Nevertheless, taken at face value, the PMI survey raises hopes the industrial sector will expand in the fourth quarter."

&#149 The US manufacturing sector grew in October for the third consecutive month and at a faster rate than expected, according to an industry report yesterday. Meanwhile, the Institute for Supply Management said its index of national factory activity rose to 55.7 in October from 52.6 in September.