UK Manufacturing PMI, October 2019 - STOP PRESS: The Purchasing Managers Index (PMI) for the UK Manufacturing sector, published this morning, showed an improvement compared to recent months but, at 49.6, it remains in negative territory. IHS Markit, who compile the data, note that output, new orders and employment all fell in the month but there is evidence of some stock-building and purchasing activity ahead of what was supposed to be the Brexit date at the end of the month - this helped to boost the index so, all things being equal, we may see a dip again in November. The UK index has now been below the crucial 50 level for 6 consecutive months.
With much of Europe not releasing their data until Monday and the figures for the Americas not out until this afternoon, we will give a full report on the October data in next week’s Friday Brief.
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; a chart report of the manufacturing PMIs prepared by MTA is available below.
CBI Industrial Trends Survey, October 2019: In the latest results from the CBI survey, there was another fall in output in the manufacturing sector in the 3 months to October and new orders (for both home and export markets) were also down. Note that the 3-month period covered by this survey is effectively the 3rd quarter of 2019 as the data collection period was 25th September to 14th October.
The fall in manufacturing output was the 4th consecutive month of flat or falling output, with 8 of the 17 sub-sectors of manufacturing seeing an increase in activity. The main driver of the decline was reported to be the Motor Vehicles & Transport Equipment group (unfortunately the CBI survey does not split out automotive and aerospace industries) which more than offset the growth that was led by Food & Drink. The bad news continues in that manufacturers expect a slightly faster fall in manufacturing output in the coming 3 months (Q4-19).
This is not surprising given the fall in orders that the survey has shown recently and this trend was continued in the latest data. Both domestic and export orders were significantly negative and this is predicted to continue in the 4th quarter, although an easing in the pace of decline is expected for the home market.
Manufacturing employment was also down for the 2nd quarter in a row and the pace of the fall in this survey was the fastest since April 2010. The expectations for the final period of the year are for a further acceleration in the rate of decline. In line with this, the proportion of companies reporting that skilled labour was a constraint on investment in the next year softened, although it does remain above the long-run average level.
This leads neatly to the investment intentions data that we get from the quarterly survey such as this one - this is where the real concerns for MTA members lies. The percentage balance has been below the long-run average in each of the four previous quarters (i.e. back to this time in 2018) but the latest reading showed a sharp deterioration to -34 - this is the weakest since July 2009 and, therefore, into recession territory. There can be little doubt that this reflects the level of uncertainty that the Brexit process is generating, although not whether it is the delays to a decision or Brexit itself which is to blame.
Looking at this by industry, the investment prospects for the Transport Equipment industry registered another sharp fall with the 4-quarter moving trend at its lowest since April 2009. There was some good news (actually, really only less bad news) in that although there was a small negative balance for the Machinery industry, this was better than a year ago, so the 4-quarter moving average edged up, but it remains weak.
Among the reasons for investment, “replacement” remains at a high level, with further falls in reporting of the intention to invest “to increase efficiency” and “to expand capacity”. There was a fall in reporting of all of the factors holding back investment (probably due to fewer multiple responses) but “uncertain demand” remains the most significant and above the long-run average. Reports of “inadequate net return” have fallen consistently since a peak in July 2018 and are now at their lowest level since January 2011.
You can see the CBI Press release on their web-site at www.cbi.org.uk/media-centre/ (published on 22 October) or request it from MTA; we can also send a brief summary of the results.
European GDP, 3rd Quarter 2019: The preliminary flash estimate of European GDP from Eurostat shows growth of +0.2% compared to the 2nd period of the year for the Euro-zone and +0.3% for the EU28. This is broadly the same as the growth in the 2nd quarter of the year but remains modest overall.
The annualised rate of growth edged down to +1.1% in the Euro-zone (from +1.2% in the 4 quarters to the middle of 2019) and was unchanged at +1.4% in the EU28.
There is no country detail in this release - that will come in the estimate that will be published on 14th November. You can download the Eurostat News Release from their web-site at www. http://ec.europa.eu/eurostat (31 October) or request it from MTA.
European Commission Economic Sentiment Indicator and Capacity Utilisation, October 2019: The European Commission (EC) draws from a range of surveys to construct its Economic Sentiment Indicator (ESI). This has been on a steady decline since peaking at the start of 2018 and saw a further reduction in October for both the Euro-zone and the EU28.
The overall ESI is made up of confidence indicators in the various sectors across the economy. Industrial confidence in the Euro-zone fell again in this survey although not by as much as over the past couple of months. The respondents were more pessimistic about the prospects for production levels but their views on current order books and stocks of finished products have levelled off. Although not included in the measure of confidence, there was a recovery in both the assessment of export order books and, in particular, production over the past 3 months.
In the Euro-zone, confidence fell slightly in the service sector but more sharply for consumers which drove down confidence in the retail trade. There was a small improvement in confidence in the construction sector but a very sharp fall for financial services companies (although the last of these is not part of the overall ESI).
This was one of the quarterly surveys that covers additional indicators including the figures for capacity utilisation. This weakened further in both the Euro-zone and EU28 and is now at its lowest since Q2-2016 and Q3-2015 respectively. Most of the major manufacturing countries also saw a fall in their capacity utilisation rates, with Germany (at its lowest level since Q4-2013) and France (lowest since Q4-2016) now both below their long-run average - Spain and Italy are still above their average levels. The exception to this trend was the UK which, surprisingly, saw its capacity utilisation rate rise to the highest level since the start of 2019.
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.