Conditions in the manufacturing sector improved at an unprecedented rate in May, as output growth strengthened and new orders rose at the quickest pace in the near three-decade survey history. Looser pandemic restrictions and high levels of pent-up demand meant that the rapid revival in labour market conditions continued, with staffing levels also rising at a record pace.
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index rose to 65.6 in May, up from 60.9 in April, above July 1994’s previous record high of 61.0. The PMI has signalled improvement in each of the past 12 months.
Manufacturing production rose at one of the quickest rates in the series history, bettered only by those registered in August 2013 and July 1994. Underpinning the latest increase were record gains in new business, as domestic and overseas demand continued to revive. Companies linked new order growth to rising business confidence, the further re-opening of the UK economy and reduced issues relating to COVID-19.
New export orders also rose at a survey-record pace in May, amid reports of stronger demand from the EU, the US and China. That said, there were continued signs that while large companies were seeing record gains in new export work, the rate of increase at small firms was comparatively mild.
Commenting on the index results, Fhaheen Khan, Senior Economist at the manufacturer’s organisation, Make UK, said: “An easing of restrictions and a robust vaccination strategy have unlocked the shackles placed on household and business demand over the last year, with manufacturers reporting strong growth and high levels of confidence. The few businesses that have failed to grow were mainly restricted by limited supply of materials rather than a limited market which bodes well for industry down the line once restrictions fully ease. However, there are some sectors such as Aerospace that are still seeing very difficult conditions and are going to take some time to fully recover.
“However, not everything in the garden is rosy as manufacturers are continuing to report concerns over increasing cost pressures due to supply shortages, freight costs, shipping delays and rising wages that are progressively impacting price levels over time. If this is to continue then consumers should be wary of significant inflation on the horizon.”
The corollary of the strong upswing in the performance of the manufacturing sector was pressure building on capacity, with backlogs of work rising to the greatest extent in the survey history. This was a major factor encouraging firms to reinvigorate their recruitment plans, leading to a record increase in staffing levels at manufacturers.
Pressure also built on suppliers, with the average time taken to deliver inputs to manufacturers lengthening to one of the greatest extents in the survey history. This was linked to input shortages (especially electronics, plastics and metals), transport delays and higher demand for raw materials.
Shortages of raw materials and supply-chain disruption fed through to input costs during May, leading to the sharpest rise in purchasing costs since the survey began in January 1992. This led manufacturers to increase selling prices, with the rate of inflation hitting a survey record.
Manufacturers’ efforts to minimise the impact of supply- chain disruption led to a series-record increase in purchasing activity during May. Rising production needs, building-up safety stocks and guarding against further price rises also contributed to the latest increase in input buying volumes. Inventories of purchases also rose but stocks of finished goods declined as firms used inventories to help meet sales.
May saw business sentiment rise to its highest level since data on future activity were first collected in July 2012. Over 70% of companies forecast that production would be higher in one year’s time, compared to only 3% expecting a decline. Improved optimism reflected the end of the pandemic, economic recovery, planned business expansions, a revival in World trade flows and reduced supply-chain issues.