Cautious consumers are dragging factory output to new heights

Among the broader signs of the global economic downturn, declining productivity in the UK consumer goods industry pushed manufacturing output to a seven-month low in May.

Growth in Britain’s manufacturing sector slowed last month, according to a closely watched survey driven by disruptions in global supply chains, high inflation and falling new orders. According to S&P and CIPS, which conducted the survey, an index of purchasing managers fell to 54.6 in May from 55.8 in April, in line with economist forecasts, and above the 50-mark, which distinguishes growth from contraction.

Manufacturing companies, which account for just under one-fifth of the UK economy, are facing “headwinds”, said Rob Dobson, director of S&P Global Market Intelligence.

“Factories are reporting higher concerns about the slowdown in domestic demand, declining exports, input and labor shortages, rising spending pressures and a given view of geopolitical uncertainty. The consumer goods sector has been particularly hard hit, as household demand has declined in response to the ongoing cost-of-living crisis, ”Dobson said.

“Foresighted indicators from the survey indicate that further slowdown may occur. “Business optimism is down 17 months and weak demand growth has led to surplus production, which means warehouse stocks are rising.”

New Covid-19 lockdowns in China’s major cities have hit supply chains, and rising production has hurt global manufacturing due to rising energy prices since the war in Ukraine. Less than half of all businesses in the UK have reported that prices of goods, products or services have risen between April and March, according to the Office for National Statistics.

High inflation has forced consumers to shift their spending on services such as tourism or leisure to more expensive products after lifting lockdown restrictions, as reported in the UK and Europe.

According to the PMI survey, activity in the eurozone manufacturing sector fell to an 18-month low in May and registered a fourth consecutive decline in output. The index fell to 55.6 from 54.5 last month and new orders fell for the first time in two years. Germany’s manufacturing powerhouse was a rare exception after Ukraine was hit by the war, with output reaching a two-month high of 54.8.

Inflation in the eurozone hit a record high of 8.1 percent in May, and businesses are passing on their high-cost customers. A measure of factory gate prices is the second highest recorded in the Eurozone PMI in May.

New figures released yesterday show that retail sales in Germany fell by an expected 5.4 percent, leading to the worst fall in food sales since records began between March and April.

“The eurozone economy seems to be growing and uncomfortably dependent on the services sector to sustain growth in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“The ability to spend has therefore been severely curtailed, and often consumers in particular have shown an interest in shifting costs from products to services with the benefit of loose epidemic travel restrictions.”

He said an undercurrent of uncertainty caused by the war in Ukraine and high inflation was making consumers more risk-averse, “pointing to the deep-rooted negative risks of the outlook”.