UK manufacturing contracts as output and new orders drop and costs rise
Just in: UK manufacturing slipped back into contraction last month as output and new orders decline and cost pressures rise, the latest poll of factory purchasing managers has found.
Data provider S&P Global’s manufacturing PMI has dropped to 49.1 in April, down from March’s 20-month high of 50.3.
Any reading below 50 shows a contraction; this ‘final reading’ is slightly higher than the ‘flash’ of 48.7
🇬🇧 United Kingdom S&P Global/CIPS UK Manufacturing PMI (Apr) $GBP
Actual: 49.1 🟢
Expected: 48.7
Previous: 50.3— PiQ (@PiQSuite) May 1, 2024
The survey has found that uncertain market conditions and client destocking hit manufacturers, who also suffered supply-chain disruption due to the Red Sea crisis.
Worryingly, new orders fell, with manufacturers reporting weaker demand from both domestic and overseas customers. New export orders have now fallen for the last 27 successive months, with reports of weaker intakes from Germany, Ireland, Asia and the US.
Average purchasing costs rose for the fourth successive month in April, with factories reporting higher costs for energy, polymers, steel, textiles, timber and transportation.
Rob Dobson, director at S&P Global Market Intelligence, said:
The sector is still besieged by weak market confidence, client destocking and disruptions caused by the ongoing Red Sea crisis, all of which are contributing to reduced inflows of new work from domestic and overseas customers, with specific reports of difficulty securing new contract wins from Europe, the US and Asia.
This downturn is making manufacturers cautious, less keen to take on staff or to build up their stocks, says Dobson, adding:
The news on the prices front is also worrisome for those looking for a sustainable path back to target (consumer price) inflation, with cost pressures growing in industry and feeding through to higher selling prices at the factory gate.
Key events
Closing post
That’s all for today. Our US colleagues will be covering the Federal Reserve decision in a couple of hours…
Here’s today’s main stories:
“Sell in May and go away” is a well-known City motto.
After a choppy, and rather quiet day, the London stock market has closed slightly in the red.
The FTSE 100 has ended the session down 22 points at 8121 points. That takes it away from the alltime high of 8199.95 points struck yesterday morning.
Trading was subdued due to Europe being closed for Labour Day.
Ocado was the top faller, down 3%, tracking losses in US teck stocks.
GSK was among the top risers, up 1.67%, after lifting its profit forecast (see earlier post).
Stocks on Wall Street are mixed today, after today’s PMI report showed US manufacturing shrinking.
The S&P 500 index of US stocks has lost 0.25%, dipping by 12 points to 5,022.8 points.
The Dow Jones industrial average, though, has nudged up by 0.2%.
US manufacturing contracted in April as March rebound fades
America’s factories have mirrored their UK counterparts, by shrinking last month.
Economic activity in the US manufacturing sector contracted in April, the latest survey from the Institute of Supply Management (ISM) shows. That reverses the expansion recorded in March, which followed a 16-month slump.
The ISM’s manufacturing PMI dropped to 49.2 percent in April, down 1.1 percentage points from the 50.3 percent recorded in March – and below the 50-point mark showing stagnation.
Firms reported a drop in new orders last month.
There are also signs that inflation pressures are building.
The Prices Index component of the index jumped to 60.9 percent, up from 55.8 percent in March, driven by a rise in costs for commodity prices such as crude oil, aluminum, steel and plastic.
The survey shows that US manufacturing is “struggling for momentum”, says Stephen Brown, deputy chief North America economist at Capital Economics.
Brown told clients:
The fall in the ISM manufacturing index back below the theoretical 50.0 no-change level in April suggests that the nascent recovery in the manufacturing sector may already have gone into reverse.
While the further rise in the prices paid index to a 22-month high looks concerning, that largely reflects the rise in oil prices at the start of the month, which has since been fully reversed.
US job openings held steady in March
US job openings were little changed in March compared with February, new data shows, suggesting demand for workers is stabilizing at an elevated level.
There were 8.5 million job openings on the last business day of March, the U.S. Bureau of Labor Statistics reported today. That’s slightly lower than a month earlier, when there were 8.8m vacancies.
The number of hires “changed little”, according to the latest JOLTS report, at 5.5 million while the number of total separations decreased to 5.2m.
Around 3.3 million workers quit their jobs, down from 3.5 million in February, while while 1.5 million were laid off or discharged, down from 1.68 million a month earlier.
Environmental activists have disrupted the start of Unilever’s annual general meeting in London today, in a protest over plastic pollution.
They are urging Unilever CEO Hein Schumacher to take action on their plastic pollution problem, particularly at its personal care brand Dove.
Greenpeace UK members used a confetti cannon to fire a shower of black paper Doves raining over the Unilever board. One protestor told the executives that they were “chief plastic polluters”, and that a letter calling on Unilever and its cosmetics division Dove to ditch single-use plastic had 140,000 signatories.
Greenpeace are calling on Unilever to stop sachet sales now, and phase out single-use plastic within 10 years.
Here’s a video clip from the AGM:
Nina Schrank, head of plastics at Greenpeace UK said:
“From palm oil to plastic pollution, Unilever can’t hide from the Real Harm they’re causing. Whilst products like Dove help Unilever rake in billions, the real cost is paid by communities far from today’s AGM. But civil society and impacted communities are here today to tell them this has to end – it’s time to change.
This is not the time to backpedal. Schumacher needs to be reducing plastic waste, not his waste targets. They must stop selling plastic sachets now, commit to phasing out single-use plastic within a decade and advocate for this same level of ambition at UN Global Plastics Treaty negotiations.”
Barclays cutting hundreds of underperforming investment bankers
Bosses at Barclays are swinging the job cutting axe, Reuters reports (and on Labour Day too!).
The bank is cutting a “a few hundred roles” in a round of redundancies aimed at tackling “underperformers” and reinvesting in new talent.
Barclays said in February it was planning to cut costs by £2bn.
Staff impacted by the job cuts are said to be based in the bank’s global markets, investment banking and research division.
A Barclays spokesperson has described the cuts as ‘difficult, but necessary’, saying:
“As previously reported, we regularly review our talent pool to ensure that we can invest in talent and deliver for clients.
“This is difficult, but necessary, to ensure we position ourselves for long-term success as we execute against our strategy.”
US private sector adds more jobs than expected
UK job creation remained strong last month, new data shows, despite the burden of higher interest rates.
Payroll operator ADP has reported that private company payrolls increased by 192,000 in April, more than the 175,000 which economists expected.
“Hiring was broad-based in April,” said Nela Richardson, chief economist, ADP, adding:
“Only the information sector – telecommunications, media, and information technology – showed weakness, posting job losses and the smallest pace of pay gains since August 2021.”
Services firms raised their payrolls by 145,000, while manufacturers took on 47,000 workers.
Pay rose by 5%, down from 5.1%.
Pay growth for job-changers fell from 10.1% in March to 9.3%, but remains higher than it was at the beginning of the year, ADP adds.
J&J proposes $6.5bn settlement to resolve talcum powder lawsuits
Johnson & Johnson is proposing a $6.5bn settlement to conclude tens of thousands of lawsuits alleging that its baby powder and other talc products contain asbestos and cause ovarian cancer.
J&J says the proposal would resolve 99.75% of the pending talc lawsuits, and bring its total payout to $11bn.
Erik Haas, worldwide vice president of litigation at Johnson & Johnson, says:
“The Plan is the culmination of our consensual resolution strategy that we announced last October.
Since then, the Company has worked with counsel representing the overwhelming majority of talc claimants to bring this litigation to a close, which we expect to do through this plan.”
Under the plan, J&J’s subsidiary, LLT Management, would file a consensual “prepackaged” Chapter 11 bankruptcy, if 75% of claimants vote in favor of the Plan.
J&J says the offer, which would be paid over 25 years, is “a far better recovery than the claimants stand to recover at trial”.
Last year, a US judge rejected a proposal under which J&J would have paid $8.9bn to settle lawsuits, premised on a bankruptcy court order that would have stopped future lawsuits from being filed against the company.
Rupert Neate
Mulberry, the luxury British brand best known for its leather handbags that can cost more than £1,600 each, has reported a 4% decline in annual sales, becoming the latest high-end company to warn of a slowdown in spending among the richest shoppers.
In a trading update, Thierry Andretta, the chief executive, said:
“While we achieved positive revenue growth in the first half, Mulberry has not been immune to the broader downturn in luxury spending experienced in recent months, particularly in the UK and Asia. This decline was partially offset by positive trading in the US, where we have benefited from increased brand awareness.
“Looking ahead, the trading environment in the UK and China remains challenging and we do not expect this to change in the short-term. We are therefore managing the business prudently, focusing on executing our strategy and vision to become a global sustainable luxury brand.”
Tusk: Poles will be wealthier than the British by 2029
Today is the 20th anniversary of Poland joining the European Union.
And Donald Tusk, Poland’s prime minister (and former president of the European Council) has said that EU membership has been good for Poles – and that within five years, they’ll be wealthier than their counterparts in Britain.
Tusk posted on X today:
As we celebrate 20 years in the EU, a fierce debate is taking place in Great Britain caused by the World Bank’s forecast that income per capita will be higher in Poland than in the UK in 2025. And I promise this: on the 25th anniversary, Poles will be wealthier than the British. It’s better to be in the EU!
Kiedy my świętujemy 20 lat w Unii, w Wielkiej Brytanii toczy się ostra debata wywołana prognozą Banku Światowego, zgodnie z którą dochód na głowę będzie w 2025 wyższy w Polsce niż w UK. I to obiecuję: na 25 rocznicę Polacy będą zamożniejsi od Brytyjczyków. Lepiej być w Unii!
— Donald Tusk (@donaldtusk) May 1, 2024
Last year, Labour leader Keir Starmer warned that Britian was on a trajectory that will soon see it overtaken by Poland, citing World Bank data.
It [Labour] said UK GDP per capita grew at an average annual rate of 0.5% in real terms between 2010 and 2021, while Poland’s grew 3.6%, (based on World Bank data).
If those trends continued, by 2030 people in the UK would each be £500 ($600) poorer than Poland’s population, Labour said, and by 2040 would have fallen behind Hungary and Romania.
Britain is still adjusting to Brexit; yesterday, food importers warned that newly introduced checks could increase their costs by up to 60%, pushing up prices for customers and driving some shops out of business.
However, there is still rather a large cap in GDP per capita between the UK and Poland, although it is narrowing, according to this chart on the World Bank’s site today:
Over on Wall Street, Yum Brands – the company behind Pizza Hut, KFC and Taco Bell – has reported a drop in profits and like-for-like sales, highlighting the squeeze on consumers.
Yum Brands missed expectations by reporting a 3% drop in same-store sales in the first quarter of this year, with GAAP operating profit declining by 1%.
David Gibbs, CEO, said:
“Despite a difficult operating environment, we delivered 6% Core Operating Profit growth demonstrating the resilience of our business model.
As expected, same-store sales were pressured this quarter, but we are encouraged by strong 2-year same-store sales growth and positive momentum exiting the quarter.”
For the first time, more than half of Yum’s sales were digital, with almost $8bn of sales made electronically.
The fact that UK manufacturers are hiking prices (see 10.21am) should not necessarily delay an interest rate cut, argues Professor Costas Milas of the Management School at the University of Liverpool.
He tells us:
What escaped attention is fresh Divisia money data. Divisia money, as a measure of liquidity, is a powerful predictor of future inflation.
The latest data suggests that Divisia money contracted by 6.2% per annum in 2024Q1. Admittedly, the annual contraction has just started reversing faster than before. This should not be a problem for inflation since Divisia money growth is still in deep negative territory.
In my view, inflation is likely to drop well below the 2% target before divisia money growth turns positive.
Photos: It’s International Workers’ Day
Activists have taken to the streets in cities across Asia and Europe today to mark International Workers’ Day.
As is traditional, the first day of May is Labour Day – a time to call for improved rights for workers, and to protest over issues such as rising prices and government labour policies.
And in Istanbul, protesters have clashed with riot police
Flutter shareholders back listing move from London to US
Newsflash: One of the London stock market’s major blue-chip members is shifting its primary listing across the Atlantic.
Sharesholders in Flutter have backed a proposal to move the primary listing of its shares from London to New York today, at its annual general meeting in Dublin.
The move comes after the world’s largest online betting company added a secondary listing in the United States.
The resolution to move to a primary U.S. listing was backed by 98% of shareholders, according to proxy votes tallied up at the company’s annual general meeting, Reuters reports. Flutter said in March that it expects the primary listing to become effective on May 31.
Flutter’s brands include Paddy Power, Betfair and PokerStars, as well as American gambling site FanDuel.
In January, it described the New York stock exchange as its “natural home”, with the stateside online sports betting boom meaning the US betting market is now Flutter’s largest by revenue.
Julia Kollewe
Amid the furore over executive pay, particularly in the pharmaceutical industry – criticised as “excessive” by governance experts – GSK chief executive Emma Walmsley said today:
“Personally, I think I’m very well paid and I’m certainly not going to comment on the level of my own remuneration. That’s the responsibility of the board and they obviously set pay against published targets.
“The much more important thing for me to work on and comment on is how we make sure that GSK, the culture of our company, the prospects of our company, the career development opportunities at our company, are really as attractive and as globally competitive as they possibly can be. So that we can recruit and develop and retain the very, very best people and honestly, I am feeling really good about that, as I look at the ongoing strengthening of the leadership teams across the organisation.”
Walmsley’s pay package jumped by 50% to £12.7m last year, mainly because of a higher share bonus payout reflecting the British drugmaker’s improved performance.
Her counterpart at AstraZeneca, Pascal Soriot, was paid nearly £17m last year and is in line for a maximum of £18.7m this year, depending on the company’s performance. His pay package was approved recently despite a sizeable shareholder rebellion.
Sarah Wilson is your guide to the latest trends, viral sensations, and internet phenomena. With a finger on the pulse of digital culture, she explores what’s trending across social media and pop culture, keeping readers in the know about the latest online sensations.
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