Reply #19: Decline in UK manufacturing slows in March [View All]

[Demeter]

http://www.ft.com/cms/s/0/10b923cc-1e98-11de-b244-00144feabdc0.html


The UK manufacturing sector declined at a slower pace in March, adding to signs that the recession may be near its deepest point, data published on Wednesday suggested.

The manufacturing purchasing managers’ index rose to its highest level since last October and has now risen for three out of the last four months.

But the reading of 39.1, up from 34.9 in February, is still close to the lowest levels that the index has recorded since collection of the data began in 1992. Any figure below 50 indicates contraction in the sector.

Economists said that although it added to recent glimmers of hope that a trough in the downturn may have been reached in the first quarter, the manufacturing sector and the economy as a whole are still in deep distress.

“The substantial gains in the output and new orders indexes are heartening and, if these can be sustained during the coming months, raise hopes that manufacturers are past the worst,” said Rob Dobson of Markit Economics. “However, we are still a long way off levels associated with an outright recovery and conditions remain fragile overall.”

Colin Ellis, an economist at Daiwa Securities SMBC, said the data “lends support to our view that may turn out to be the nadir of the recession, with growth slowly heading back up to zero over the rest of this year.”

The manufacturing survey showed that stock levels fell sharply and reached a new record low - suggesting that companies have sold off many of the widgets sitting on their shelves and may soon have to increase production to meet orders.

New orders fell at a notably slower pace, as did output. Manufacturers also shed jobs at a slower pace - with 20,000 to 25,000 jobs being lost in March compared to 30,000 in January, according to the Chartered Institute for Purchasing Suppliers and Markit, which produce the report.

The sharp fall in sterling may have been responsible in part for the slowing decline in new orders, economists said, pointing to a smaller drop in export orders. The UK PMI is now also at its highest compared to eurozone PMI since 1997.

Nevertheless the index suggests manufacturing has now been in recession for a full year.

Separately, Bank of England data showed that homeowners ploughed more money into paying off their mortgages at a record pace in the final quarter of last year. Homeowners paid back a net total of £8bn of their mortgages between October and December, which made up 3.3 per cent of their post tax income. In contrast, net housing equity withdrawal was 6.2 per cent income after tax in the first quarter of 2007.

Both figures were the highest since records began in 1970, and confirm the sharp rise in the household savings rate seen in the quarter. Some see the rapid pace in which consumers are paying back debts and increasing savings as a sign that the economy is closer to rebalancing. But there is also a risk that consumers retrench too quickly, reducing the effectiveness of quantitative easing and deepening the recession.

“Given the structurally impaired nature of the UK economy - an impairment centred firmly upon an absence of domestic savings - such a development is to be welcomed, said Richard McGuire, fixed income strategist at RBC Capital Markets. “The pace with which this rebalancing is occurring, however, will be of some considerable concern for policy makers owing to the threat of this process both limiting the effectiveness of the QE project and prolonging the current slowdown. “


COULD IT BE THAT SINCE BRITAIN NATIONALIZED AND RESOLVED ITS PROBLEM BANKS, THAT IT WILL COME OUT OF THIS CYCLE---AND WE WON'T, SINCE WE DIDN'T?