PMI: Manufacturing upturn slows further as supply-chain strain and labour shortages stymie growth

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​Supply chain delays, slower new order growth and rising material and labour shortages all constrained the UK manufacturing sector in September, according to the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI).

At 57.1, down from 60.3 in August, the PMI fell to a seven-month low. Manufacturing production increased for the 16th consecutive month in September. However, the rate of expansion eased for the fourth month in a row and to its weakest since February.

Growth slowed across the consumer, intermediate and investment goods sectors. Data broken down by company size indicated that upturns at medium and large-scale producers were offset by a continued downturn among small firms.

Production schedules were disrupted by a combination of input shortages, longer supplier lead times and capacity constraints (including difficulties with staff shortages and hiring required skills).

Average vendor lead times increased to one of the greatest extents in the survey history, amid reports of delays to air, land and sea freight, staff shortages at vendors, Covid-19 and Brexit disruptions, a lack of delivery drivers and port delays.

Weaker growth of new business also stymied efforts to increase output further during September. New orders rose at the weakest pace since February, as intakes from domestic clients increased at a slower pace and new export work contracted for the first time in eight months.

The decline in new export orders reflected shipping issues, cancellations due to long lead times and capacity issues at clients. UK manufacturers continued to report labour shortages and difficulties recruiting appropriately skilled staff during September.

Although jobs growth was registered for the ninth month running, the rate of increase was the weakest since January. Jobs growth slowed at medium and large sized companies, while small manufacturers saw cuts for the first time in eight months.

Where higher employment was recorded, this was generally to meet production requirements, combat rising backlogs of work and preparations for future growth. Outstanding business increased at one of the fastest rates on record, with over 30% of firms experiencing an expansion.

Meanwhile, manufacturers maintained a positive outlook for the year ahead in September. Over 62% of companies forecast their output would increase during the coming 12 months, compared to only 6% expecting a contraction. The confident outlook was attributed to recoveries in both domestic and global markets, reduced difficulties from supply chains, Covid-19 and Brexit and planned new product launches.

The impact of supply chain pressures also impacted inventory holdings. Companies reported building contingency stocks, leading to a further increase in input inventories and purchasing activity.

Meanwhile, disruption to production schedules meant additional pressure on holdings of finished products (which fell for the twentieth month in a row).

Commenting on the latest survey results, Rob Dobson, director at IHS Markit, said: “The September PMI highlights the risk of the UK descending towards a bout of 'stagflation', as growth of manufacturing output and new orders eased sharply while input costs and selling prices continued to surge higher.

“Companies are facing a growing list of headwinds, which includes declining new export orders, component shortages, delays to air, land and sea freight, staff shortages exacerbated by COVID-19 illnesses, Brexit disruptions, sharply rising costs and now fuel shortages.

“Production growth is severely impacted by the ongoing strain across supply chains and, with demand far exceeding supply, the inevitable result has been higher prices, which will ultimately hurt the pockets of consumers.

“The jobs market is also experiencing slower growth, as firms experience labour shortages and difficulties recruiting required skills. With little sign of resolution to these issues, manufacturers, especially smaller firms with lower market power or capacity flexibility, will continue to be buffeted by these headwinds for the foreseeable future, hinting at a tough autumn and winter ahead for many firms.”