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ECONOMIC DATA THIS WEEK

UK Manufacturing Output, April 2019:  The headlines from the manufacturing output data published by the Office for National Statistics (ONS) earlier this week very much depend on which series you look at.  On our preferred measure of rolling three months trends, total manufacturing output in the latest 3 months (February, March and April 2019) was +1.2% higher than the previous three months (November and December 2018 and January 2019) and +1.0% higher than the same period a year earlier (February, March and April 2018).  These increases were mainly due to improvements in the Pharmaceutical (+5.5% on the previous 3 months) and Food & Drink (+2.6%) industries.

However, if you look at the month-on-month data, there is a very different picture with total manufacturing output falling by -3.9% compared to March 2019, mainly as a result of a decline of -24.0% in the Automotive industry.  This was not unexpected given the announcements by Mini and other factories that they were moving their annual maintenance shutdown from the summer to April as a hedge against disruption to just-in-time supply chains from Brexit that was originally scheduled for 29th March.  There are, however, a couple of important points to note about this trend;  there will be a corresponding bounce in May, although the problems in this industry will temper this and, perhaps more importantly, the size of the reduction has been exaggerated by the seasonal adjustment in the published data which is set-up to adjust for things like working days due to holidays (such as Easter), but not for one-off changes in timings - note that for the same reason we are likely to see the reverse effect in July/August when the seasonal adjustment will be looking for a “normal” reduction in output which, hopefully, won’t happen.

In the rest of this report, we will return to looking at the usual rolling 3-month trend, but the one-off effects need to be borne in mind.  As well as the Automotive industry trends, there appears to be a similar effect in the Machinery and Metal Products industries which both had a weak month in April;  while the latter of these will be, in part at least, a feed through from the Automotive industry and the end to stock-building, it is not clear why the Machinery industry was weak in April.

In the latest 3 months, output of the Capital Goods sub-sector fell by -0.5% compared to the previous 3 months and by -3.6% when looking back to the same period a year ago.  At the industry level, our 4 key indicators have split into two pairs of trends.  The Aerospace industry saw output increase by +2.2% compared to the previous 3 months, but the level was still -1.0% lower than a year earlier, while the trends for the Metal Products industry were +2.4% and -1.8% respectively.

On the other hand, the output of the Automotive industry in the latest 3 months was -7.3% lower than in the previous 3 months and -12.2% down on a year earlier (mainly, but not entirely, because of the unusual figures for April), while the Machinery industry had similar, if less dramatic, trends at -1.2% and -6.4% respectively.

You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (10 June) or request it from MTA;  we also have an analysis of the key industries which is available to members - please contact Geoff Noon (gnoon@mta.org.uk) if you would like these charts.

European Industrial Production, April 2019:  The news from Eurostat does not improve the mood with total industrial production (this is mostly manufacturing, but also includes extraction and utilities activity) in the Euro-zone falling by -0.5% compared to March 2019 and by -0.4% compared to April 2018.  For the EU28 as a whole, the month-on-month trend was worse at -0.7%, although it is only -0.1% lower than a year earlier - since the start of 2018, the EU28 has been doing a little better (or perhaps more accurately, a little less badly) than the Euro-zone and this gap had widened in the early months of 2019.

There is less detail in the Eurostat News Release, but we do get data for the Capital Goods sub-sector;  in the Euro-zone, output fell by -2.0% compared to March 2019 and by -1.2% over a year earlier, with the EU28 trends at -2.0% and -1.6% respectively.  On all four comparisons, the Capital Goods sector was the weakest of the sectors within industrial production.

Looking back to April 2018, of the 25 Member States for whom the figures have been published, total industrial production grew in 15 and fell in 10.  The fastest growth was in Lithuania (+13.8%), Ireland (+6.9%) and Poland (+6.6%), but perhaps of greatest concern is the fact that the fastest decline in output was in Germany (-3.4%), with Netherlands (-2.7%), Latvia and the UK (both -2.4%) also down significantly.  It is unusual to see large countries among those with the fastest changes and although the percentage change in Germany is relatively small, in value/volume terms, this is a large number.

You can download the Eurostat News Release from their web-site at www. http://ec.europa.eu/eurostat (13 June) or request it from MTA.

UK GDP, monthly estimate for April 2019:  The latest data for the UK economy reflects the trends in the manufacturing output data that we have already reported.  The rolling 3-month growth rate to April showed a rise of +0.3%; this is slower than the +0.5% recorded for March (1st quarter of 2019) and, at first glance, may appear inconsistent with the month-on-month trends of -0.1% for March and -0.4% for April;  what it does, of course, is reflect the strength of growth in February.

While monthly data can be volatile, it is worth looking at this in a little more detail as it tells us something about the impact of one-off events and the prospects for the next part of the year.  The overall GDP trend (month-on-month) was +0.2% in February and, as already noted, -0.1% in March and -0.4% in April;  the turnaround between February and March was largely in the service sector where the trend went from +0.2% in February to -0.1% in March - over the same months, manufacturing growth was +1.0% and +0.9%.  In April, the service sector “improved” a little to register unchanged output, but with manufacturing falling by -3.9% (see previous article), the economy overall had a more negative trend than in March.  The other sector worth noting is construction where the trend was +0.5% in February, -1.9% in March and -0.5% in April.

Therefore, in the current 3-month period, we have strong growth in manufacturing for the first two months (mainly related to pre-Brexit stock-building), followed by a sharp dip (for different Brexit related reasons) while services, which is, by far, the largest part of the economy, has been relatively weak.  May is likely to see a rebound in the manufacturing data, but unless there is an improvement in the service sector, GDP growth for the 2nd quarter of the year is likely to be weaker than the +0.5% recorded in the 1st quarter.

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 June) or request from MTA.

UK Exports & Imports of Machine Tools, 1st Quarter 2019:  We have analysed the data published by HM Revenue & Customs;  this shows that exports of machine tools were worth £137.0 million in the first part of the year, which is an increase of +12.6% over a year earlier and is +5.2% higher than in the final period of 2018.  For imports, the value of £157.3 million represents growth of +13.1% compared to a year earlier but is -1.9% down on the figure for the 4th quarter of 2018 - it is worth noting that the last quarter the calendar year is usually the strongest for both exports and imports of machine tools.

By trading partner, exports to the European Union increased by +20% compared to the 1st quarter of 2018 at £72.5 million (just under 53% of total exports);  growth in exports to the rest of the world was noticeably slower at +5%.  Trade by country within the European Union is not reliable because the data is collected on a country of consignment basis which is not necessarily the same as country of destination, so we can only really look at trends for non-EU countries.  Exports to China grew by +87% to make this the largest non-EU destination for UK machine tool exports, helped by a fall of -55% in shipments to the USA - note that the latter is a return to more “normal” levels of trade following what looks like a spike in Q1-18.

For imports, the patterns were more balanced with arrivals from the European Union growing by +13.5% (just over 54% of total machine tool imports), while the rest of the world saw growth of +12.5%.  The most notable trends by country here were growth of +41% in imports from Japan which took them back to being the top non-EU source, helped by small falls in arrivals from Taiwan (-3%), USA (-8%) and South Korea (-2%).

If you are interested in more details, perhaps by product type, please contact Geoff Noon at MTA (e-mail:  gnoon@mta.org.uk) to identify the data you are looking for.