PMI, UK and Euro-zone, February 2019: The Purchasing Managers Index (PMI) for the UK manufacturing sector published this morning showed a small fall from the January number but, with a reading of 52.0 is still significantly above the crucial 50 level that marks the boundary between expansion (above 50) and contraction (below 50). Crucially, however, this is largely driven by the fastest ever recorded expansion in stocks of inputs as companies look to shield themselves from Brexit related problems in the supply-chain. There was a small improvement in output, but this is also Brexit related as firms look to reduce backlogs and build-up stocks of finished goods. Growth in new orders was broadly flat with signs that the domestic market is slowing and a further drop in new orders which leads to optimism about future output levels falling to its lowest ever level in February.
The picture in the Euro-zone is even more gloomy, although more mixed; the overall manufacturing PMI fell to 49.3 and in negative territory for the first time since June 2013. It is significant that 3 of the 4 major manufacturing economies, Spain (49.9), Italy (47.7) and, most worryingly, Germany (47.6) were below the 50 level, with France seeing a small improvement at 51.5. This weakness is most apparent in the investment and intermediate goods industries, with output overall falling for the first time in 5½ years. This was accompanied by the sharpest fall in new orders since April 2013 and export orders down by the greatest degree for over 6 years as the challenging international climate, with political and trade uncertainties restricting activity.
There are also clears signs of problems in Asia with 3 of the 4 published series below 50 - we don’t get the Korean or Taiwanese figures until Monday (both of these were negative in January); China (49.9) did see an improvement compared to January and is right on the cusp of the key number, but the PMI for the ASEAN region slipped slightly (to 49.6) and Japan saw a fall in its manufacturing PMI to 48.9 - the first time it has been below 50 here since August 2016. India remains the bright spot in Asia with their PMI moving up a little to 54.3 in February.
In non-Euro European countries, despite an improvement from January, Turkey continues to have the lowest PMI reading at 46.4 and both Poland (47.6) and the Czech Republic (48.6) slipped further into negative territory; Russia (50.1) just escaped this fate, despite a fall from the January level. There was some good news with significant improvements for Hungary (55.7), Switzerland (55.4) and Sweden (52.5). Publishing schedules mean that we don’t get the data from the Americas (Brazil, Canada, Mexico and the USA) until this afternoon.
The IHS Markit PMI reports for major economies around the world are available from their web-site at http://www.markiteconomics.com/Survey/Page.mvc/PressReleases or we have a summary report of charts which is available from MTA (contact Geoff Noon - firstname.lastname@example.org).
European Commission Economic Sentiment Indicator, February 2019: The European Commission’s (EC) Economic Sentiment Index fell marginally in the Euro-zone, with a slightly more substantial reduction for the EU28 as a whole mainly because of a sharp deterioration in the UK (the largest non-Euro economy in the EU28).
Industry confidence in both the Euro-zone and the EU28 was down for the 3rd month in a row; this was a result of more pessimistic views on all three elements of this trend - expectations for production in the coming 3 months, the current level of order books and stocks of finished products.
The survey tracks two other measures that are not included in calculating the ESI; the assessment of export order books was also lower than the previous month but there was a significant recovery in output levels over the past 3 months.
You can download the EC report from their web-site at https://ec.europa.eu/info/business-economy-euro/indicators-statistics/economic-databases/business-and-consumer-surveys/download-business-and-consumer-survey-data/press-releases_en or you can request it from MTA.
CELIMO State of Trade Report, February 2019: CELIMO is the European group for associations representing importers and distributors for our sector and they have just published a new report of the economic and market situation. With the exception of Turkey which is something of an outlier on most of the measures, the economic growth is split into two groups; Austria, Finland, Netherlands, Spain, Sweden and Switzerland had growth rates in excess of 2% in 2018, with varying degrees of slowing expected for 2019, while Belgium, France, Germany, Italy and the UK had growth rates between 1% and 1.5%, although for these countries, a similar rate is then expected for 2019. The report also summarises the manufacturing PMI levels, inflation and unemployment.
In 2018, the strongest growth in the machine tool market was recorded in Switzerland, Italy, and Finland which were all at or close to +20%, with the German market close behind at +16%; the UK was the only other country where machine tool demand was above +10%. In 2018, Turkey saw a small fall in machine tool demand, but it was the only country where the 2019 rate is expected to be better than 2018.
Growth rates for cutting tools are generally more moderate, with Netherlands, Switzerland and France leading the way, with Italy not far behind. With the exception of Belgium, all of the countries where the forecast is available expect a slower rate of growth in 2019 - Turkey has +5% growth for both years.
The CELIMO State of Trade Report is available on request from MTA – please contact Geoff Noon (email@example.com) for a copy; we will also send a summary of machine tool market data for 2018 that we have received from a range of countries including Germany, Italy, Japan (metal forming only), Spain and Switzerland.
UK Productivity, 4th Quarter 2018: The flash estimate from the Office for National Statistics (ONS) shows output per hour across the whole economy fell by -0.2% in 2018, while output per worker was down by -0.1%. Compared to the previous quarter, output per hour increased by +0.2%; this was driven mainly by an increase in Gross Value Added (GVA), although helped by a marginal reduction in the number of hours worked.
There is no sectoral breakdown in these figures, although with GVA in manufacturing falling in the final period of 2018, a reduction in productivity seems likely.
You can access the ONS Statistical Bulletin from their web-site at www.ons.gov.uk or request it from MTA.
BEAMA Contract Price Adjustment Service: Do you have long-term contracts, either with customers or suppliers? Have you thought about incorporating something in the contract that allows you to adjust the price according to changes in input costs?
On behalf of members, MTA subscribe to a service provided by our colleagues at BEAMA which gives a monthly track of key indices on labour and materials costs. Of course, you need to get the principle and the relevant formulas included in the contract, but this gives you a way of updating the relevant prices independently.
If you would like more details on this, please contact Geoff Noon (firstname.lastname@example.org) at MTA; we can send you a copy of the latest report and some typical formulae and can have a discussion about whether or not this would be useful for you.