Friday 1 March 2013

Economic Glimmers of Hope – But Uncertainty Holds Strong

 Authored by Claire Sexton 

Last month's Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) offered a glimpse of hope for the UK economy: Manufacturing output grew at the fastest pace since September 2011 – a strong start to 2013.

Economists are hoping that this improvement is not a random occurrence, but rather the beginning of an upward trend. However, there is a major caveat to this growth: Although it’s a positive sign for the manufacturing sector, that sector only accounts for 10 per cent of Britain’s economy.

Let’s turn to the Services PMI, which, like its manufacturing counterpart, expanded in January for the fourth consecutive month. And as we all know, the services sector is the backbone of all business in the UK.

While we wait and see if January’s progress extends into Q1 and beyond, the procurement function will still feel pressure from executive management to deliver more cost savings, faster – with reduced staff and budget.

Private organisations will continue to face the inventory dilemma: should we go lean and keep costs down, or load up in preparation for heightened demand? Interestingly, their decisions have a direct impact on how fast the manufacturing sector can grow. 

I suspect that most companies will continue to hold onto their cash. Aggressive buying in an uncertain market is a scary proposition. But it's also a double edged sword: the more companies hold back and remain cautious, the slower the manufacturing turnaround will be.

What's your take on the recent changes to the PMI -- does it affect how your company manages inventory?

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