UK Manufacturing Output, 1st Quarter of 2019: The figures on manufacturing output released last Friday backed up some of the recent survey data in suggesting a period of stock-building, with output increasing by +2.2% in the 1st quarter of 2019 compared to the final period of 2018. In particular, the Office for National Statistics (ONS) notes growth was led by the pharmaceutical industry, with significant contributions also coming from the food & drink and metals & metal products industries.
The Capital Goods sub-sector did see some growth in the 1st quarter with output +1.1% higher than in the previous period, but this was not enough to counter the weak end to 2018, so the level was still -3.0% lower than a year earlier (1st quarter 2018). It is also worth noting that this was the weakest growth of the major sub-sectors of manufacturing which was led by the +4.5% quarter-on-quarter increase in the consumer non-durables sub-sector.
There are some mixed trends in the customer industries, although only one of these probably reflects the stock-building cycle. Both the Machinery and Automotive industries saw output fall compared to both the previous quarter and to a year earlier; for the Machinery industry, output was -0.5% lower than at the end of 2018 and -7.0% down on a year earlier, while the Automotive industry saw trends of -0.2% and -6.9% respectively.
Reflecting the growth noted above, the Metal Products industry saw output increase by +3.4% compared to the 4th quarter of 2018 and while we don’t have any detail, it seems that the customers of this industry are where some stock-building has taken place; despite this growth, output was still -1.5% lower than a year ago.
The other industry to see a positive trend in Q1-19 was Aerospace, but the modest quarter-on-quarter increase of +1.3% was not enough to counter-act the falls we saw through 2018, so output was still -2.4% lower than a year earlier. It seems unlikely that this is stock-building; the falls in output that the ONS has recorded since May 2017 have been puzzling and we are probably seeing an un-winding of this effect.
Before we finish, it is worth noting the increase in output of the “Other Transport Equipment industry - this is everything in transport except automotive. Output here grew by +2.4% compared to Q4-18 (and it was +0.5% higher than a year earlier); while the aerospace figures are part of this, there has also been an increase in shipbuilding and in the “other” part of this industry - the latter probably reflects the new trains being built by Hitachi in the North-East as the timing of this growth ties in with their production.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (10 May) or request it from MTA; we also have an analysis of the key industries which is available to members - please contact Geoff Noon (firstname.lastname@example.org) if you would like these charts.
UK GDP, first estimate for 1st Quarter 2019: The ONS estimates that the UK economy grew by +0.5% compared to the 4th quarter of 2018, taking the annualised rate up to +1.8%; Q1 was the weakest quarter in 2018, so the stock-building in manufacturing - which largely drove the improvement at the start of 2019 - had a significant effect on the annualised rate.
Using the output measures, both services (+0.3%) and construction (+1.0%) were also positive, while on the expenditure calculations, private consumption, government consumption and investment were all positive but there was a significant widening of the trade deficit. The latter was partially affected by trade in erratic items including non-monetary gold (because most of the world’s trade in this commodity happens in London, it counts towards the UK’s trade position) and there was also a sharp increase in imports which is probably related to the stock-building we saw in the manufacturing data.
There was some good news in the investment data where total business investment increased by +0.5% compared to the 4th quarter of 2018 - this follows four consecutive quarters with a negative trend, as a result of which, it was still -1.4% lower than in the 1st quarter of 2018 and the 12-month rolling trend was -1.3%. We don’t get any industry detail until next month, but the ONS does provide some figures on the type of asset which is being purchased; spending on “ICT and other machinery” grew by +6.6% compared to the previous quarter and by +4.6% on a year earlier, but the rolling 12-month trend still showed a fall of -0.5%.
Finally, returning to the overall GDP data, the monthly figures show that despite the strong contribution from manufacturing, GDP contracted in March, with the service and construction sectors contracting. Indeed, service sector activity has been muted throughout the quarter and it was the manufacturing (each month) and construction (mainly in January) sectors that drove the growth. Looking at the monthly analysis, GDP grew by +0.5% in January and +0.2% in February before falling by -0.1% in March.
There are more details in the ONS Statistical Bulletin which you can download from their web-site at https://www.ons.gov.uk/releasecalendar (10 May) or request from MTA.
Bank of England Inflation Report, May 2019: In making their unanimous decision to keep the Bank Rate at +0.75%, the Monetary Policy Committee (MPC) reflected on the latest update to their outlook for the economy. In anticipating that this would rise to 1.0% over the next two years - a smaller increase than they expected in their February report - they noted that the UK economy was influenced by recent global developments as well as falling expectations for rate increases in the USA.
As with everyone else, their outlook is complicated by the uncertainty over Brexit. In their central projections, they expect GDP growth to pick up in 2020 - the 1st quarter figures for 2019 are seen as being an exception in what is likely to be a relatively weak year for growth - as business investment recovers and household spending, sustained by rising real incomes, supports demand growth.
They expect inflation, which was +1.9% in March, to fall slightly over the next few months, largely as a result of falling retail energy prices, before picking up next year to above +2% by early 2021 and gently increasing after that.
Their summary concludes that the economic outlook for the UK will continue to depend on the nature and timing of our withdrawal from the European Union, the new trading arrangements between the UK and the EU and whether or not the transition to them is smooth or abrupt.
You can get more details on the Bank of England Inflation report from their web-site at https://www.bankofengland.co.uk/inflation-report/2019/may-2019 or request the pdf of the full report from MTA.
USMTO and US CTMR, March 2019: The US Manufacturing Technology Orders (USMTO) programme tracks orders in the US market, based on the reports from participants. The first quarter of 2019 saw orders -9.5% lower than in the same period in 2018 (January to March); the rolling 12-month trend (the total for the past 12 months compared to the previous 12-month rolling total slowed to +9.8% - still a healthy rate. This was mainly because the March 2019 figure, although the highest monthly total of 2019 so far, was nearly -20% lower than March 2018 - the latter was an exceptional month which distorts the real trend.
None of the regional totals are published for confidentiality reasons but the results for metal cutting machines (which is by far the largest part of the market covered by the USMTO) are available. Only the South-East region saw any real growth (+18%) compared to the 1st quarter of 2018, although the North-East was marginally higher (+1%). The other 4 regions all saw a fall in order intake, with the largest reduction in the South-Central area (-32%); North-Central-East (at -6%) was the only one in single digits.
The US Cutting Tool Market Report (CTMR) is similar in concept, although it tracks sales rather than orders. In contrast to the machinery market, sales were running at +8.6% ahead of the 2018 level in the 1st quarter; the 12-month rolling trend grew by +13.1%. There is no regional breakdown in this report.
You can download the press release for the USMTO from the AMT web-site at www.amtonline.org, with the CTMR release published both there and on the USCTI web-site at www.uscti.com; alternatively, you can request either or both releases from MTA and we can make sure you get them when they are published each month.