Purchasing managers surveys point to modest underlying growth

Thursday, 04 October 2012 10:10

The purchasing manager reports for the manufacturing, construction and services sector for September published this week show that overall growth is slowing in the UK economy compared to August.

This means that most economists still expect to see growth in the third quarter, but perhaps slightly less than expected at the start of the week.

The manufacturing sector saw the PMI drop to 48.4 in September from 49.6 in August, indicating a slight contraction in the sector.

The sector should still provide some sort of contribution to an improvement in the overall economy in the third quarter compared to the second quarter as there was a big improvement in industrial production in July.

However, it does not bode well for the final quarter of 2012 and it may well be that manufacturing provides a drag on the economy.

Meanwhile, on Tuesday, the construction sector saw a moderate rise in activity with the PMI index up to 49.5 in September, up from 49.0 in August. A reading of below 50.0 indicates a slight contraction in the sector.

Output and new business levels slipped slightly in the month which means the outlook for the sector is not promising.

Howard Archer, Chief UK Economist at forecasters IHS Global believes it may prove a drag on third quarter GDP.

He said: “The largely poor September purchasing managers’ survey points to a markedly struggling construction sector, and suggests that construction output could well have remained a drag on GDP in the third quarter.

“The September construction purchasing managers survey highlights the case for government initiatives to try and lift infrastructure activity and house-building,” he added.

Yesterday, saw the services sector PMI released and again there was a drop in activity levels from August, but the vital services sector at least remained in positive growth territory, down from August’s index reading of 53.7 to 52.2.

There is hope for the fourth quarter here though because Markit reported a solid gain in new business growth, the sharpest since March.

So where does this leave the overall economy and what is likely to happen to GDP in the final two quarters of 2012?

Howard Archer commented: “Overall, the September purchasing managers services survey supports the view that the economy is now seeing modest underlying growth but it clearly still has its work cut out to sustain even that.

“We expect GDP to have grown by around 0.6% quarter-on-quarter in the third quarter, which would modestly outweigh the 0.4% quarter-on-quarter drop suffered in the second quarter.”

As for beyond the fourth quarter, Mr Archer said: “The suspicion is that service companies will have their work cut out to achieve anything more than modest  growth in the near term at least given the still significant pressure on consumers, the uncertain business outlook and tightening government spending.”


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