Manufacturing growth slows to 5-month low in March amid weaker demand

Randal Sanchez
April 4, 2018

Britain's factories increased production unexpectedly last month despite the sector experiencing its weakest quarter in a year, with signs the growth spurt enjoyed towards the end of 2017 has fizzled out.

This is the eighth consecutive month that the index remained above the 50-point-mark.

At 4.00 am ET, final Eurozone manufacturing PMI is due.

Output growth picked up, although this was offset by slower increases in both new orders and employment, data showed.

"Hopefully, there is no escalation in the trade war between China and the US". "PMI employment data gave warning signs in the labour market", Dodhia said, adding that "manufacturers operating in consumption and intermediate market groups signaled no appetite for recruitment". "Input cost inflation consequently hit the highest since 2012". Higher production was mainly linked to new order growth and favorable demand conditions.

"March's heavy snowfall doesn't appear to have had a particularly severe impact on supply chains", noted Ruth Gregory at Capital Economics.

The reading has increased from a previously revised-down 55 points to 55.1; while a fractional improvement this has still been good news on a larger scale. Given the current market environment, it would appear that the coming March US Nonfarm Payrolls report (and knock-on effects to Fed funds rate pricing) would not be the catalyst to drive such price action; instead, a further tightening of financial conditions and erosion in risk sentiment would be necessary.

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Manufacturing output growth had remained steadily above 1% towards the end of a year ago but may have fallen to about 0.5%, according to economists.

Tomorrow, Markit will be releasing the PMI construction sector survey with a forecasted reading of 50.8 while on Thursday the PMI services sector reading is due out with a predicted reading of 54.0. Anecdotal evidence suggested that greater sales to domestic and export clients had underpinned the latest upturn in new business intakes.

A separate but similar survey from IHS Markit indicated manufacturing growth was at its highest level in three years.

Although the PMI is positive, it's the lowest in a year; in the last quarter of 2017 the PMI surged by 1,3%. Recent lengthening in suppliers' delivery times has been among the greatest in the survey history, leading to widespread reports of raw material shortages and supply delays. Although the rate of growth softened to a four-month low, the pace of expansion remained comfortably above the long- run series average.

Manufacturers raised their staff level for the 24th successive month in response to higher output requirements.

While the USA economy ended 2017 on fairly high note, MarketWatch noted it may have gotten off to a softer start in 2018.

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