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North West PMI

Sponsored by England's Regional Development Agencies

The PMI® (Purchasing Managers’ Index®) North West Report is produced for NWDA by Markit Economics. The report features original survey data collected from a representative panel of companies based in the North West and operating in both manufacturing and service sectors. The North West survey forms part of a series of nine regional surveys published by the Regional Development Agencies and Markit Economics and is derived from the highly regarded national PMI surveys produced by Markit. For further information, please contact: Markit Economics Henley on Thames Oxon RG9 1EL, UK Tel: +44 1491 461000 Fax: +44 1491 461001 E-mail: economics@markit.com

The Northwest Regional Development Agency (NWDA) is the regional development agency for England’s Northwest – one of nine in England established to transform the English regions through sustainable economic development. Since 1999 the NWDA has been working to deliver economic success in England’s Northwest by building the competitiveness of its businesses, people and places. Utilising our technical expertise and strategic influence, we help the region’s 250,000+ businesses to develop and grow, as well as supporting international trade and encouraging inward investment. For further information please contact: Nicola Christie Economist NWDA Tel: 01925 400 293 Email: nicola.christie@nwda.co.uk

The intellectual property rights to the North West PMI provided herein is owned by Markit Group Limited. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markit’s prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Markit, PMI and Purchasing Managers’ Index are all trademarks owned by The Markit Group.

8th February 2010

Employment grew in January for first time since April 2008. Key findings: n

Activity and new business growth accelerated.

n

Moderate capacity pressures supported hiring.

n

Output price inflation remained subdued, but input prices continued to rise sharply.

It was a positive start to 2010 for the North West private sector, as it outperformed the wider UK economy in terms of output, new business and employment. Moreover, tentative signs that pressures on capacity were building suggest that job creation will continue in the coming months. However, data showed that input prices again rose strongly whilst charge inflation was muted.

North West Business Conditions Output

65

Rising

60 55

Output and demand

North West private sector companies raised output at a sharp and accelerated pace during January, which respondents linked to gains in new business. Moreover, the latest increase was the strongest since July last year and above the series long-term trend. Expansions were recorded across both the manufacturing and service sectors, although growth was more pronounced in the latter. New work continued to rise at the start of Q1, extending the current period of expansion to nine months. The latest growth was marked and the fastest for over two years, with around one-inthree firms receiving more new business on the month. Respondents stated that the main factors behind new order gains were favourable economic conditions, improved consumer confidence, new product launches and competitive pricing.

Employment and backlogs

Latest data suggested a slight build-up of capacity pressures in the North West private sector in January, as workloads grew. Unfinished business rose after a thirty-eight month sequence of contraction. Although only modest, the increase in backlogs was a survey record, with around one-quarter of panellists noting a rise. Growth was centred on manufacturing, as outstanding contracts continued to be depleted in services. Meanwhile, employment expanded for the first time since April 2008. In contrast, work-in-hand and staffing numbers continued to fall across the UK on average.

50 45 40

Falling

35 30

Order Books 65 60

Rising

55 50 45 Falling 40 35

Employment

60

Rising

55

50

45

Falling

40

Input and output prices

Input prices faced by North West private sector firms rose for the seventh month running during the latest survey period. Inflation held steady at a considerable pace, which survey participants attributed to greater wage and raw material costs. Higher prices for fuel, paper-related products and certain plastics were particularly mentioned by respondents. The rise in VAT was also commented on. Companies were able to pass through part of their increased cost burdens to customers in January, thanks to stronger demand for goods and services. Even so, charge inflation weakened marginally since December to only a modest pace.

35

Input costs/prices charged 80

Input costs

75 70 65 Rising

60 55 50 45

Prices charged

40

Falling

35 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


North West PMI

Output / Business Activity Q. Is the level of output or business activity at your company higher, the same or lower this month than one month ago?

North West Companies

2009 2010

May Jun Jul Aug Sep Oct Nov Dec Jan

All UK

Higher %

Same %

Lower %

Index 50=no chg

S.Adj'd Index

S.Adj'd Ind

23.5 31.3 38.4 24.4 32.9 32.2 37.2 44.0 37.0

59.3 50.0 44.2 52.4 44.7 43.3 46.8 41.8 35.9

17.3 18.8 17.4 23.2 22.4 24.4 16.0 14.3 27.2

53.1 56.3 60.5 50.6 55.3 53.9 60.6 64.8 54.9

53.6 56.7 57.7 55.5 54.5 54.0 55.2 55.9 57.4

51.0 51.8 53.6 54.7 54.3 56.9 56.5 57.2 55.5

50 = no change on previous month (seasonally adjusted)

65

Increasing rate of growth

60 55 50 45 40

Black line: North West Grey line: All UK

35

Increasing rate of decline

30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Climbing for the third month running, the seasonally adjusted Business Activity Index posted its highest reading since last July at the start of 2010. January’s index level was comfortably above its long-run average and consistent with a considerable rise in North West private sector output. Additionally, for the first time since September last year, the region’s performance was better than that of the wider UK economy. Underpinning the expansion in activity were further marked gains in new work, according to panel members.

New Orders / Incoming New Business Q. Is the level of new orders or incoming new business at your company higher, the same or lower this month than one month ago?

North West Companies

2009 2010

May Jun Jul Aug Sep Oct Nov Dec Jan

Higher %

Same %

Lower %

Index 50=no chg

27.8 30.4 35.3 24.7 29.8 31.5 43.0 44.4 32.2

50.6 45.6 40.0 49.4 42.9 33.7 36.6 34.4 43.3

21.5 24.1 24.7 25.9 27.4 34.8 20.4 21.1 24.4

53.2 53.2 55.3 49.4 51.2 48.3 61.3 61.7 53.9

All UK

50 = no change on previous month (seasonally adjusted)

S.Adj'd Index

S.Adj'd Ind

65

53.8 53.6 55.1 53.4 52.7 51.8 54.3 56.8 56.9

50.9 49.6 53.1 52.6 53.6 55.8 56.1 57.2 54.9

Increasing rate of growth

60 55 50 45 40 35

Black line: North West Grey line: All UK Increasing rate of decline

30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Incoming new business to the North West private sector grew for the ninth month in succession at the start of Q1. The pace of expansion has accelerated during every month since last November, albeit only fractionally over the latest survey period. Respondents linked January’s marked increase to a combination of better economic conditions, improved consumer confidence, new product launches and competitive pricing. Sector data showed that the rise in new work was broad-based across both manufacturing and services.

Business Outstanding Q. Is the level of business outstanding at your company higher, the same or lower this month than one month ago?

North West Companies

2009 2010

May Jun Jul Aug Sep Oct Nov Dec Jan

Higher %

Same %

Lower %

Index 50=no chg

8.0 8.2 20.0 11.5 14.1 9.5 19.1 21.2 24.7

72.0 65.8 58.8 65.4 52.6 57.1 58.4 57.6 50.6

20.0 26.0 21.3 23.1 33.3 33.3 22.5 21.2 24.7

44.0 41.1 49.4 44.2 40.4 38.1 48.3 50.0 50.0

All UK S.Adj'd Index

S.Adj'd Ind

43.9 40.0 45.5 43.5 40.2 39.0 44.3 47.5 51.9

41.1 41.3 42.7 40.9 42.1 45.8 47.7 48.9 48.8

50 = no change on previous month (seasonally adjusted)

65 60 55

Increasing rate of growth

Black line: North West Grey line: All UK

50 45 40 35 30

Increasing rate of decline 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

January marked the end of a thirty-eight month contractionary sequence in total volumes of unfinished business across the North West private sector. Backlogs built up at a pace that, although modest, was nevertheless a survey record. The rise reflected a stronger inflow of new work to the region. Throughout the series history (which spans over ten years), work-inhand has only accumulated in nine survey periods. Data revealed that the modest increase was centred on the manufacturing industry, as outstanding contracts continued to be cleared in the services economy. All Intellectual Property Rights owned by Markit

2


8 February 2010

Employment Q. Is the level of employment at your company higher, the same or lower this month than one month ago?

North West Companies

2009 2010

May Jun Jul Aug Sep Oct Nov Dec Jan

Higher %

Same %

Lower %

4.9 10.1 7.1 9.8 8.2 11.1 13.8 13.2 13.0

75.3 72.2 84.7 76.8 85.9 77.8 71.3 78.0 71.7

19.8 17.7 8.2 13.4 5.9 11.1 14.9 8.8 15.2

Index 50=no chg

42.6 46.2 49.4 48.2 51.2 50.0 49.5 52.2 48.9

All UK S.Adj'd Index

42.2 44.3 46.6 47.9 47.5 48.0 48.7 50.0 52.3

S.Adj'd Ind

42.7 42.5 43.5 45.3 45.1 46.1 47.1 47.8 49.2

50 = no change on previous month (seasonally adjusted)

65 60 55

Increasing rate of growth

Black line: North West Grey line: All UK

50 45 40 Increasing rate of decline

35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

North West private sector firms added to their workforces for the first time since April 2008 in January. Although moderate, the moderate increase was the strongest for twenty-two months. Anecdotal evidence suggested that the need to expand capacity drove personnel growth in the region. Data showed that manufacturers and service providers hired workers at similar rates. Meanwhile, the seasonally adjusted Employment Index for the UK remained below the neutral mark of 50.0 to show another drop in staffing levels across the country as a whole.

Input Prices / Costs Q. Have average input prices or input costs risen, fallen or remained unchanged this month compared to one month ago?

North West Companies

2009 2010

May Jun Jul Aug Sep Oct Nov Dec Jan

Higher %

Same %

Lower %

14.1 17.7 21.2 21.3 27.4 22.5 22.8 17.8 19.8

65.4 69.6 63.5 67.5 65.5 70.8 71.7 78.9 75.8

20.5 12.7 15.3 11.3 7.1 6.7 5.4 3.3 4.4

Index 50=no chg

46.8 52.5 52.9 55.0 60.1 57.9 58.7 57.2 57.7

S.Adj'd Index

45.0 49.1 52.3 53.9 55.1 56.8 58.0 59.8 59.8

All UK

50 = no change on previous month (seasonally adjusted)

S.Adj'd Ind

75

48.5 49.8 50.4 52.0 51.9 54.0 54.7 55.9 58.5

80 Black line: North West

Increasing rate of inflation

Grey line: All UK

70 65 60 55 50 45 40 Increasing rate of deflation

35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Unmoved from its level in December, the seasonally adjusted Input Prices Index signalled another sharp rise in input costs in January. Approximately one-fifth of North West private sector companies saw their average cost burdens increase on the month, while only around 4% reported a decline. Underpinning the latest round of inflation were higher employment and raw material costs. Greater prices for fuel, paper-related products and certain plastics were specifically highlighted by panel members. The return of VAT to 17.5% was also commented on.

Output Prices Q. Are the average prices charged for goods and services by your company higher, the same or lower this month than one month ago?

North West Companies

2009 2010

May Jun Jul Aug Sep Oct Nov Dec Jan

All UK

Higher %

Same %

Lower %

Index 50=no chg

S.Adj'd Index

S.Adj'd Ind

7.6 6.3 10.6 9.9 10.7 10.2 9.8 11.1 14.3

81.0 83.5 83.5 84.0 83.3 86.4 83.7 82.2 79.1

11.4 10.1 5.9 6.2 6.0 3.4 6.5 6.7 6.6

48.1 48.1 52.4 51.9 52.4 53.4 51.6 52.2 53.8

49.4 48.6 52.1 52.6 52.3 51.5 50.5 52.1 51.9

46.0 46.2 48.0 46.9 48.1 49.2 48.9 50.2 50.9

50 = no change on previous month (seasonally adjusted)

65

Increasing rate of inflation

60 Black line: North West Grey line: All UK 55

50

45

Increasing rate of deflation 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Companies operating in the North West’s private sector raised their charges in January. The main reason for this, according to respondents, was to partially offset a further increase in input costs. Output prices in the region have been rising since July last year. However inflation eased slightly during the latest survey period. Although the increase was the weakest since last November and below the series average, it was nevertheless more marked than charge inflation across the UK overall, which was only marginal.

3


8 February 2010

Regional Comparisons: Output The graph below shows the regional PMI Output Indexes for the UK. An average of the latest three months is used (see also the table to the right). Eleven of the twelve UK regions recorded an increase in business activity during the three months to January, with Northern Ireland the only exception. The sharpest rises were in London and the North East, followed by the South East. 50 = no change on previous month (3-month ave.)

62 60 58 56 54 52 50

e

U K

N .Ir

N E

al es

id s E

W

.M

H

id s

Y

&

W

.M W

S

co t

as t

S

E

E

N W

S

Lo n

48

London South East North West East of England Scotland South West West Midlands Yorks & Humber East Midlands Wales North East N.Ireland UK

Share of UK GVA, 2007 (National Statistics)

(21.0%) (14.4%) (9.6%) (8.9%) (8.2%) (7.8%) (7.5%) (7.1%) (6.3%) (3.6%) (3.2%) (2.3%) (100.0%)

PMI Output Index Last 12 Latest 3 months months

Latest month

53.6 51.7 52.9 52.0 48.7 52.3 48.6 50.9 51.0 51.6 52.5 43.6 52.0

60.6 55.3 57.4 53.0 50.6 53.8 53.3 52.0 54.1 53.1 59.6 43.9 55.5

60.8 56.4 56.2 55.0 53.0 54.7 54.3 54.4 55.9 54.2 59.4 47.7 56.4

Regional Comparisons: Employment The graph below shows the regional PMI Employment Indexes for the UK. An average of the latest three months is used (see also the table to the right). Job shedding was recorded in eleven of the twelve UK regions in the three months to January. Only the North West registered an expansion of workforce numbers. The steepest rates of job shedding were in the West Midlands, Yorkshire & Humber and Northern Ireland. 50 = no change on previous month (3-month ave.)

52 50 48 46

K U

e .Ir N

E

es

N

s id

al

.M E

W

s

H &

id .M

Y

W W

S

co S

t

W

as E

N

n Lo

S

E

42

t

44

South East London North West East of England Scotland South West West Midlands Yorks & Humber East Midlands Wales North East N.Ireland UK

Contribution to UK Employment, 2008 (National Statistics)

(14.6%) (12.3%) (10.9%) (9.6%) (8.7%) (8.6%) (8.6%) (8.2%) (7.3%) (4.6%) (3.9%) (2.7%) (100.0%)

PMI Employment Index Last 12 Latest 3 Latest months months month

45.1 43.0 45.3 44.1 47.0 43.8 41.2 43.5 42.6 45.7 45.1 43.6 43.8

48.6 47.3 50.4 49.1 49.5 47.5 45.3 47.0 47.8 49.4 48.3 47.1 48.1

49.8 49.4 52.3 49.0 48.1 48.7 47.8 48.1 49.4 48.8 48.0 46.3 49.2

PMI Survey Methodology PMI surveys Purchasing Managers’ Indexes (or PMIs) are monthly surveys of carefully selected companies which provide an advance indication of what is really happening in the private sector economy by tracking variables such as output, new orders, employment and prices across both manufacturing and service sectors. The PMI surveys are based on fact, not opinion, and are the first indicators of economic conditions each month. The data are collected using identical methods in all countries and regions so that accurate comparisons may be made. Questionnaires are completed in the latter half of each month and are collected and processed by economists at Markit Economics. Respondents are asked to state whether business conditions for a number of variables have improved, deteriorated or stayed the same compared with the previous month.

Index numbers Index numbers are calculated from the percentages of respondents reporting an improvement, no change or decline. These indices vary between 0 and 100 with readings of exactly 50.0 signalling no change on the previous month. Readings above 50.0 signal an increase or improvement; readings below 50.0 signal a decline or deterioration. Reasons given by survey respondents for any changes are analysed to provide insight into the causes of movements in the indices and are also used to adjust for expected seasonal variations. The indexes are seasonally adjusted to take into consideration expected variations for the time of year, such as summer holiday shutdowns and national holidays such as Christmas.

About NWDA and Markit Economics The Northwest Regional Development Agency (NWDA) works to deliver economic success in England’s Northwest by building the competitiveness of its businesses, people and places. Utilising our technical expertise and strategic influence, we help the region’s 250,000+ businesses to develop and grow, as well as supporting international trade and encouraging inward investment. In 2006 we led the work to analyse the regional economy and to develop and publish a three year Northwest Regional Economic Strategy (RES). The RES is a roadmap for our region’s economic development. We work alongside a wide range of partners in the public, private and third sectors to ensure delivery of this strategy, building upon our region’s many strengths and developing solutions which address its unique challenges. The NWDA is now working on the wider Regional Strategy 2010 which will be a new and clear strategic investment framework for the region. RS 2010, the Regional Strategy for the Northwest, provides a unique opportunity to bring together its spatial, economic, social and environmental strategies and build a new long term vision for the region. All Intellectual Property Rights owned by Markit

Our regional role ensures we have the access to resources and the capacity needed to tackle the region’s most challenging regeneration and development needs. We also have the flexibility to respond swiftly to changing circumstances or to economic shocks. An evaluation of our investment between 2002 and 2007 provided robust evidence of our performance. During this period we achieved a £5.20 return for every £1 of public investment. Since 1999 this investment helped to create/safeguard 222,000 jobs and 23,000 new businesses, generated £150m from major events and helped manufacturers achieve £740m in cost savings across the Northwest. Markit Economics is a specialist compiler of business surveys and economic indices, including the Purchasing Managers' Index (PMI) series, which is now available for 26 countries and key regions including the Eurozone and BRIC. The PMIs have become the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. 4

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