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All-sector PMI™ drops to 48.9 in November, third-lowest since
April 2009
Output and new orders fall in manufacturing, services and
construction
Jobs cut for third straight month to mark worst period for
labour market since 2010
Optimism picks up, but remains subdued
UK business activity contracted for the fifth time in the past
six months during November, marking the economy's worst spell since
2009. Brexit and general election uncertainty caused further
postponements or cancellations of orders and spending, leaving
firms focusing on cost reduction, notably via further job losses.
Exports fell especially sharply. Future expectations picked up to a
four-month high, however, as no-deal Brexit worries eased.
PMI signals fourth-quarter GDP decline
The headline IHS Markit/CIPS Composite PMI - a GDP-weighted
average of the output indicators from the manufacturing,
construction and services surveys - fell from 49.5 in October to
48.9 in November, its third-lowest since April 2009. Over the past
six months, only July saw modest growth of business activity,
representing the economy's worst patch in terms of deteriorating
business activity since the global financial crisis ten years
ago.
The average PMI reading for the fourth quarter so far is
historically consistent with a 0.1% quarterly rate of decline in
GDP, though our nowcast model incorporating a wider field of data
suggest a flat picture.
The steepest downturn continued to be reported in the
construction sector, where output has now fallen for seven
successive months (and in nine of the past ten months), continuing
to decline at one of the steepest rates since 2009 despite the pace
of contraction easing slightly in November.
November also saw
manufacturing output fall for a sixth straight month, albeit
with the rate of decline having eased in recent months from the
steep downturn seen in the third quarter, which saw production
deteriorate to the greatest extent for seven years.
A renewed fall in service sector output meanwhile rounded off a
triple-whammy of declines, with only July 2016 and March of this
year having seen steeper falls in output over the past seven years.
Within services, only computing & IT and transport &
communication saw higher activity levels. Consumer-facing service
sectors reported the strongest downward trends.
Heightened uncertainty
Analysis of the anecdotal evidence collected in the three PMI
surveys underscored the extent to which business continued to cite
Brexit uncertainty as a key factor dampening business activity and
hurting demand. However, Brexit woes were exacerbated by further
uncertainty ahead of the general election on 12th December. PMI
surveys do not always fall in the month before a general election,
sometimes even rising, but the current election appears to have
dented demand. New orders in fact fell in November to the
second-greatest extent since April 2009, deteriorating in all three
sectors. Export orders fell particularly sharply, and especially
from EU-based customers.
Jobs culled amid excess capacity
The steep loss of new orders meant order inflows deteriorated at
a sharper rate than output across the three sectors, resulting in
one of the quickest falls in backlogs of work recorded in recent
years. Such a marked depletion of outstanding business points to
the development of excess capacity, which was in turn linked to
further job losses in November.
Across the three surveys, net job losses were recorded for a
third successive month. Although the overall rate of payroll cuts
eased, the fall in headcounts continued to paint one of the
bleakest job market pictures seen over the past ten years.
Easing Brexit worries
Encouragingly, business optimism about growth in the year ahead
improved in November. The lift in sentiment mainly reflected easing
fears of an imminent no-deal Brexit, and hopes that greater clarity
on Brexit will help revive demand to some extent. However, the
overall degree of optimism remained historically subdued as
companies continued to worry about the uncertainty caused by Brexit
and the changing political environment, as well as wider
geopolitical issues such as trade wars and slowing global economic
growth.
PMI and GDP comparisons
The PMI surveys have diverged from GDP in recent quarters, with
the latter showing considerably greater volatility than the survey
data. Much of this volatility in the GDP numbers appears to have
resulted from Brexit-related factors, such as stock-building and
car sector factory closures (
read more about this divergence with the survey data here).
Using an average of the GDP data to iron out some of this
volatility, the official data and survey data show similar trends
of growth slowing markedly so far this year. On average, GDP has
now fallen by 0.1% in each of the latest six months for which data
are available (to September).
The next PMI release of the flash manufacturing, services and
composite PMI numbers for December is scheduled for 16th
December.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
