Factory order books show signs of life

THE British manufacturing sector contracted at its slowest pace in a year in May according to the monthly purchasing managers&rsquo; index (PMI) published yesterday, fuelling further optimism that an economic recovery could be on its way.<br /><br />The CIPS/Markit index rose for the third month in a row to 45.4 in May, above April&rsquo;s figure of 43.1 and above market expectations of 44.0. Rob Dobson, senior economist at Markit ,said: &ldquo;Although the PMI remains below levels consistent with outright recovery, this is a further sign that the downturn in UK manufacturing is easing.&rdquo;<br /><br />He added that the orders-to-inventory ratio &ndash; which tends to lead the production cycle &ndash; rose to a 32 month high in May, suggesting that PMI and output indices could stabilise within the next three months.<br /><br />New orders continued to decline in May but at a slower rate; the balance rose to 48.9 from 46.4, which suggests that the improvement is down to more than an easing in the rate of inventory run-downs, according to Vicky Redwood, UK economist at Capital Economics. She added that it provides more evidence that the economy will contract by much less in the second quarter than in the first.<br /><br />ING economist James Knightley said the PMI figure of 45.4 suggests real GDP growth of -0.5 per cent year-on-year.<br /><br />Meanwhile the US manufacturing sector contracted at a slower rate in May, while consumer spending fell modestly in April, more proof the deep recession is losing its bite.<br /><br />The Institute for Supply Management&rsquo;s closely-monitored index of national factory activity rose to 42.8 last month from 40.1 in April. Separately, the Commerce Department said consumer spending slipped 0.1 per cent in April after a 0.3 percent fall in March.