The manufacturing purchasing managers index (PMI) is an economic indicator derived from monthly surveys of private sector manufacturing sector. A reading above 50 shows signs of expansion, and conversely a reading below 50 represents contraction. The headline figure is an amalgamation of numerous variable, managers are asked questions with regards to new orders, prices, inventories and exports to name a few. The PMI is seen as a leading indicator as it provides information about companies and sector performance before related in company filings.
The graph shows a comparison for the 3 months between the UK, US, Eurozone and Japan. Over the past 3 months, all regions have produced figures greater than 50, indicating that each region has been experiencing expansion within their manufacturing sector. The 57.4 posted for the Eurozone for June brings the Eurozone PMI to a 74-month high, led by improved performance from Germany, France, Italy, Ireland and Greece. For the US, there was continued expansion but at a lower rate mainly caused by a contraction in new business. Cost pressure has continued to ease which has helped to elevate input costs for most manufacturers.
For the UK, manufacturing production increased for the 11th consecutive month. The continued growth has been attributed to higher intakes of new business. Some firms have noted that growth in new orders has been slowing and consequently total output has risen to a lesser extent than previous months. Interestingly, the report shows that price pressure has continued to ease with input and output costs down from the start of the year which may be weighing on the decision making of the Bank of England when considering raising interest rates.
The Japanese manufacturing sector continued to grow over the quarter, extending its expansion to 10 months. Rising demand from South East Asia, along with expansion in production and new orders, has helped keep the headline figure above 50.
HOUSE PRICE GROWTH
House price growth regained momentum last month, according to Nationwide’s House Price Index. Prices rose 1.1% month-on-month in June, reversing the previous three months’ falls. Annual house price growth, which gives a better indication of the underlying trends, was above the consensus, rising to 3.1% from 2.1% in May. In effect, after three consecutive falls, annual price growth has returned to the 3-6% range that had been prevailing since early 2015
Annual Percentage Change in UK House Prices
In addition, Nationwide reported that in Q2 the gap in house price growth between the strongest performing region (East Anglia, which saw 5% annual growth) and the weakest performing region (the North, with 1% growth) is the smallest on record.
The emerging squeeze on household income appears to have led to a drag in housing market activity in recent months as the number of approved mortgages has slowed and new buyer enquiries have softened. Robert Gardner, Nationwide’s Chief Economist, commented, ‘At this point it is unclear whether the increase in house price growth in June reflects strengthening demand conditions on the back of healthy gains in employment and continued low mortgage rates, or whether the lack of homes on the market is the more important factor.’
As we have discussed in previous articles, as Brexit negotiations unfold, the economic outlook of the UK remains uncertain. Housing market trends will depend on developments in the wider economy. However, the subdued level of building activity and the shortage of properties on the market are likely to provide support for prices. As a result, Nationwide believes that a small increase in house prices of around 2% is likely over the course of 2017 as a whole.