Manufacturing conditions have continued to improve in August according to the latest CBI Industrial Trends Survey, which suggested that output will fall during the next quarter at its slowest pace in over a year.
Although 32% of the 560 manufacturing firms surveyed expect production to decline further, 27% expect it to improve. The resulting balance of -5% is the highest since June 2008 and a significant improvement on last month’s reading of -14%.
Following aggressive stock reductions over the summer, only one in five businesses now have more than adequate stockpiles compared to 7% with insufficient reserves. The difference of 13% is the most moderate in more than 12 months having fallen in four of the previous five.
The result will inevitably be a rise in production over the coming months, suggesting the economy could soon receive a timely boost – this despite a net 54% revealing new orders in August were below normal.
The positives that can be taken from this survey are in-keeping with the suggestion the manufacturing sector expanded in July for the first time since March 2008, according to the CIPS/Markit Purchasing Managers’ Index. The survey posted 50.8, up from 47.4 in June. Any figure below 50 indicates the sector is in recession.
The improvement was largely fuelled by overall production rising for the second consecutive month and to the greatest extent since December 2007, while new orders rose for the first time in fourteen months and at the fastest rate since November 2007.
These figures were much better than expected, though with employment within the sector falling for the fifteenth successive month, a word of caution has been sounded:
“Despite the heartening outcome in July, the sector is still reeling from the depth of the recession,” explained Rob Dobson, senior economist at Markit.
“Restructuring and cost control efforts remain widespread, job losses are still mounting and inventory positions being unwound at an historically rapid pace.
“It will be some time before manufacturers recover fully from the downturn.”