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ECONOMIC DATA THIS WEEK

UK Manufacturing Output, August 2019:  The latest manufacturing output data from the Office for National Statistics (ONS)  has been subject to the extensive revision (or perhaps more accurately a re-write of history) that we discussed last week in our piece about the UK National Accounts.  An initial reading suggests that while most of the numbers have changed, the trends remain broadly similar to the pre-revision estimates except, of course, that we now have an extra month of data.

In the 3 months to August 2019 (June, July and August), total manufacturing output was -1.1% lower than in the previous 3 months (March, April and May) and was -1.5% down on the same period last year (June, July and August 2018).  The first of these trends is notable as it come despite the weakest recent month (April 2019 because of the automotive industry shut-downs) being in the “previous” period and, as we will see later, suggests that we have not fully recovered from that temporary dip in activity.

At the sector level, the output of the Capital Goods industries grew by +0.2% over the previous 3 month level but was -3.4% down on a year earlier.  As in July, this was the only sub-sector of manufacturing where output grew on the shorter-term measure but was the only one (apart from intermediate goods) where output fell compared to last year.

At the industry level, we do see some evidence of a recovery in the Automotive industry where output was up by +11.4% compared to the previous 3 months (which, as noted above, includes April).  However, with output in the last 3 months still -3.9% below the level of a year earlier, it does not seem to have fully recovered the loss of output in April (although the seasonal adjustment, which has been thrown out by this distortion in activity, may also be affecting the accurate tracking of this industry).

Data from SMMT shows that car output in the first eight months of 2019 was down by -17% on the same months last year (January to August 2018);  both home and export deliveries were lower than in 2018, by -11% and -18% respectively.  For engines, following a flat trend in 2018, the first 8 months of 2019 have seen output fall by -8% but here it is the home market that has been most affected with the fall in car output leading to the production of engines for the UK market being down by -13%, while those for export have only fallen by -5% in the first eight months of 2019.

The other industries that we track have all seen output in the latest 3 months lower than both the previous 3 month period and the same months in 2018.  The “least bad” industry was Metal Products where output was down by -0.9% and -0.7% respectively, while Machinery (mechanical engineering) saw trends of -2.5% and -5.4% and Aerospace was down by -3.0% and -5.5%.  the latter is slightly puzzling, but probably reflects the way some companies measure output and by the effect of the slowing of the production rate of the Boeing 737MAX feeding into the UK part of its supply chain for this aircraft.

You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (10 October) 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.

UK Investment by sector, 2nd Quarter 2019:  Regular readers will recall that when the UK national accounts were published a couple of weeks ago, the detailed breakdown of business investment at the sector and high level industry levels was postponed.  These have now been published and don’t make pretty reading.

Total manufacturing investment is estimated to have fallen by -22.5% compared to the 1st period of the year and by -19.1% over the level of a year earlier.  As with most of the UK economic data being released at the moment, there has been a re-writing of economic history that also applies here.  Manufacturing investment is now estimated to have grown slowly but steadily throughout 2018 and into 2019 before the sharp fall in the new data for the 2nd quarter.

For the Engineering & Vehicles (E&V) industry, capital expenditure in the 2nd quarter shows a quarter-on-quarter fall of -5.8% to a level that is -15.9% lower than a year earlier.  However, the revisions here are to a different pattern to those for total manufacturing investment with the 1st quarter of 2019 now estimated to have seen a fall of -15.7% compared to the end of 2018 and -11.1% over a year earlier.

With the revision to the data in the latest release, total manufacturing investment in the 2nd quarter of 2019 is at its lowest level since the final period of 2015 and capital spending by the E&V industry is at its lowest since the 3rd quarter of 2014.  It remains to be seen whether or not this data will be revised in future releases - investment figures, especially at the detailed level, are often volatile and a couple of years ago, a particularly weak set of numbers were subsequently revised up quite significantly.

UK GDP, monthly estimate for August 2019:  Data from the ONS shows that UK GDP increased by +0.3% in the 3 months to August, with services and construction making positive contributions to this trend, but manufacturing was negative.  However, GDP fell in the single month of August - the 3-month rolling trend improved because the rates for June and July have been revised up in the latest figures.

In part, this also relates to the extensive revisions that the ONS has carried out recently - we discussed this in our article last week about the UK national accounts.  The Purchasing Managers Index (PMI) for September was, however, quite weak with manufacturing, construction and services all below 50;  this suggests that GDP could well be negative in September but the general feeling is that the UK will probably avoid GDP being negative in the 3rd quarter and, therefore, not be in a recession.

Within the service sector, the largest contribution to growth in the 3 months to August came from the motion picture (including TV and music) industry.  The individual manufacturing industries were mostly negative in this period, although transport equipment does show growth following the dip in April with the closure of a number of automotive plants in anticipation of the UK’s departure from the European Union (see above for more on this).

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 October) or request from MTA.

European Business Investment and Profitability, 2nd Quarter 2019:  Data published by Eurostat shows that the business investment rate for the Euro-zone leapt up to 25.7% in the 2nd quarter - this is up from 23.8% in the previous quarter.  However, there is no commentary on this release of data and the number looks to be out of line with recent trends.  Looking back, there was a similar spike in the 2nd quarters of both 2015 and 2017 (from lower levels), so we need to wait for the Q3 figures to really understand what is behind this significant improvement in investment data.

In contrast, the business profit share fell in the 2nd quarter to 39.2% (from 39.6% in the 1st period of the year).  This has been on a generally declining trend since its most recent peak in the 3rd quarter of 2017 and is now at its lowest level since the end of 2014.

The business investment rate is defined as gross fixed capital formation divided by gross value added.  The business profit share is the gross operating surplus divided by gross value added.

This dual release only covers the Euro-zone and we don’t have the equivalent figures for the EU28.  You can download the Eurostat News Release from their web-site at www. http://ec.europa.eu/eurostat (04 October) or request it from MTA.

UK Labour Productivity, 2nd quarter 2019:  The latest ONS data on productivity shows a fall of -0.5% in output per hour worked for the whole economy and a decline of -1.9% for manufacturing - in both cases, this is compared to the level of a year earlier.  Indeed, with service sector productivity also lower than a year earlier, the only sector to see an improvement was construction.

In manufacturing, output per hour (the preferred measure of productivity) fell because while hours worked grew by +0.6% while output (gross value added) fell by -1.3%  The data tables also give the trend for the broad industry categories within manufacturing;  these show a range of trends in output per hour compared to the 2nd quarter of 2018 from+12.7% in the textiles & clothing industry through to -9.5% in Rubber & Plastics and -8.4% for Transport Equipment (automotive, aerospace, etc.).

There are more details in the ONS Statistical Bulletin which you can download from their web-site at https://www.ons.gov.uk/releasecalendar (08 October) or request from MTA.