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Monday, 2 November 2009

The Pink Pravda

UK manufacturing hits two-year high

or so runs the headline on one of the articles in the FT. They gush further:

"British manufacturing rebounded in October to its highest level in two years, with the month-on-month gain in the headline reading of a key survey rising at a near-record rate."

So is output storming ahead as the headline implies? It turns out that this is only the CIPS/Market UK manufacturing survey of purchasing managers rose to 53.7, back above the 50.0 no-change mark. The 3.8 percentage point gain on September’s output is the survey’s third-highest one-month rise on record.

“It appears that the manufacturing sector has turned a corner and is starting to pull itself out of recession,” said David Noble, chief executive at the Chartered Institute of Purchasing and Supply, which sponsors the survey.

But digging a little deeper we find that companies have restarted some production lines, which is good, while clients were moving closer to restocking after a sustained period of running down inventories. And then we remember that a large part of the recession in manufacturing entailed a running down of inventories, so this is just the bottoming out of the run down of inventories, or perhaps the bottom of the recession. It doesn't necessarily imply unlimited continuing growth.

The survey also found a sharp rise in the number of companies reporting increases in input prices. A balance of 57.56 per cent more of those surveyed reported input prices rising rather than falling. A reading of 50.0 indicates that on balance as many of those surveyed see conditions improving as deteriorating, meaning no change in business overall.

Actually this is just plain misleading. The 57.56 per cent (more than what?) of purchasing managers reporting higher input prices has nothing to do with the 50.0 reading for the survey, but juxtaposing the two gives the impression that this is good news. In reality it is probably bad news resulting from a weaker exchange rate, but the FT won't let that get in the way of a good story.

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