Reaction to PMI reports for May
Chris Williamson, chief business economist at IHS Markit, has commented on the group’s Purchasing Managers’ Index reports for May.
He said: “Last month business activity rose to the greatest extent recorded so far this year, but forward-looking indicators suggest growth could deteriorate again in coming months.
“The expansion of business activity signalled by the May PMI surveys was the largest since last December. At 54.3, the all-sector output index rose for a second successive month from the weather-related 20-month low seen in March.
“At 53.7, the average all-sector PMI reading for the second quarter so far this year was up from the 53.1 average seen in the first three months of 2018, adding to hopes that the economy will rebound from its first quarter soft patch.
“Weak new order inflows suggest, however, that growth could wane in the months to come. New orders grew at an unchanged rate in May, meaning the second quarter is on course for the smallest rise in new business since the third quarter of 2016, when demand slumped in the aftermath of the EU referendum.
“Backlogs of orders fell for a second successive month as firms worked through previously received orders. The latest decline in backlogs reflected an especially steep fall in manufacturing.
“The drop in unfinished work indicates that existing capacity is more than sufficient to deal with order inflows. Hiring is consequently running at the joint-lowest for 21 months, highlighting the reduced need to build capacity, as well as gloomier expectations of future growth.
“Expectations regarding future business activity fell sharply in May, almost entirely reversing April’s rise, to run at the second-lowest level since last October.
“By sector, output growth accelerated in manufacturing and services, but was unchanged in construction. However, while the upturn was once again led by manufacturing, only the service sector saw inflows of new business rise at an increased rate – the fastest for three months.
“Manufacturing new orders showed the smallest increase for 11 months, while new work in the construction sector fell back into decline.
It was also only the service sector which saw hiring pick up, albeit still only registering the second-weakest jobs gain for 14 months. All three sectors saw future expectations of growth wane in May.”