The best days of the recovery are behind us. That seems to be a reasonable conclusion from the latest factory data, which shows the growth in output and new orders slowing in August.
Overall, looking across all areas of manufacturing, the Markit/Cips purchasing managers index (PMI) registered its slowest rate of growth since June last year.
Adding to the sense of anti-climax, most of the companies covered by the survey said they expected expansion to be solid rather than spectacular. To those who hoped the most recent data represented a temporary dip before a second surge in output, there must be disappointment. It appears the scene is set for a more a prolonged period of muted growth.
There is a way of looking at the broader picture and smiling. While there may not be extra demand for skilled workers in a sector that has reached capacity, at least for the time being, manufacturers are paying their staff real terms wage rises. According to payments processing firm VocaLink, a look at the salary payments made by Britain's top 350 businesses shows workers received a 0.6% above inflation increase in wages over the last year. Manufacturers pushed up monthly pay above inflation by 0.7%.
Domestic demand also looks to be grounded in solid long-term contracts. The plastics industry is flying on the back of increased car output and the food and beverages industries are expanding steadily, albeit in a tough, cost-conscious environment.
Metal production, especially highly engineered products, is doing well. Of the big sub-sectors, only pharmaceutical manufacturers are a major drag on increased activity.
One measure of international trade in raw materials has also indicated that the manufacturing scene is healthier than the latest data indicates. The Baltic Dry index is a record of how much freight – most of it stuff such as copper cabling and other non-perishable goods – is going round the world. It has increased dramatically over the last month to a high not seen since March. It is viewed by some analysts as a guide to the health of international trade after it collapsed ahead of the 2008 financial crash. Its recovery could be telling us something about why manufacturers remain quietly confident.
