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ECONOMIC DATA THIS WEEK

CBI Industrial Trends Survey, January 2020:  The latest results from the CBI Industrial Trends Survey (ITS) reflect an improvement in sentiment around the turn of the year (the data collection period ran from 16 December to 13 January) that is the strongest on record.  However, this came despite another weak period for activity in manufacturing and given the timing seems to reflect a post-Election boost in confidence.

In the previous 3 months, output in the sector fell at a rate similar to the previous survey and there have been 8 months of flat or falling output.  Only 5 of the 17 sub-sectors recorded growth in output in the latest ITS, although this was led by the mechanical engineering (machinery) industry, helped by food & drink.  The main decline was in the automotive industry which saw a sharp fall in output.  Respondents to the ITS expect overall output to recover slightly in the next 3 months.

Total orders also fell over the previous 3 month period and at the fastest pace since the financial crisis.  In particular, this reflected the most rapid reduction in domestic orders since that crisis.  Export orders also fell, but at a slower pace than in the previous 3 month period.  On the basis of an improvement in export orders and a stabilising of the home market, respondents expect an improvement in orders over the next 3 months.

This is one of the longer quarterly surveys and the best news is a significant improvement in investment intentions for spending on plant & machinery.  The 5 previous surveys, since October 2018, have been significantly negative, but the latest results posted a balance of +5 which is the best since January 2018 and well above the long-run average.  Encouragingly, this was led by a sharp turnround in investment intentions for both the transport equipment (the CBI don’t split automotive and aerospace in this question) and mechanical engineering industries and even the metal products industry saw a small improvement.

There was also a sharp improvement in the number of companies saying that investment was to expand capacity - this reached its highest level since 1980!  There was also a noticeable change in the responses to the question about constraints on investment.  While uncertainty about demand is still top of the list, the percentage of respondents citing this fell again in this survey and there was a sharp increase in those reporting inadequate return (highest since July 2018) and labour shortages reached the highest level since the survey began in 1995.  Shortage of finance was at its lowest since July 2018.

You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (22 January) or request it from MTA - we can also provide a summary of the results and some charts around the investment intentions data.

Profitability of UK Companies, 3rd Quarter 2019:  The Office for National Statistics (ONS) data shows a fall in the net rate of return for manufacturing companies to 11.1%;  this compares with the revised figure of 12.0% in the 2nd period of the year and 16.0% a year earlier.

They attribute the quarter-on-quarter fall mainly to companies in the computers, electronic and optical products and electrical equipment industries who were reporting a decline in their profit data while there was an improvement in profitability for the chemical and food & drink industries.

The net rate of return used in this data series is defined as economic gain (profit) as a share of the capital used in production.  The use of “net” refers to the rate of return after having accounted for the current value of capital consumed and capital stocks - the latter term refers to the decline in the current value of the stocks of fixed assets owing to things like depreciation.  Since the last release in this series, revisions to the capital stocks data mean that the profitability figures have been revised back to the start of 2018 and now show a sharp decline during 2019.

There are more details in the ONS Statistical Bulletin which you can download from their web-site at https://www.ons.gov.uk/releasecalendar (23 January) or request from MTA.