PMI, UK and Euro-zone, March 2017: The Purchasing Managers Index (PMI) for the UK edged down slightly again in March, but the reading of 54.2 is still strong and the somewhat negative headlines in some of the media were not really justified. The rates at which both output and new orders are growing slowed, but are still above their long-term averages and price pressures remain high. The slowdown in production was concentrated in consumer goods, with both intermediate and, more importantly for us, investment goods accelerating.
The Euro-zone saw its PMI reading pick up in March and reached its highest level in nearly six years at 56.2. Both Germany (58.3) and Italy (55.7) were at long-term highs and France (53.3) also saw its PMI level pick up compared to February. Like the UK, the Euro-zone also saw both output and new orders growing, but in this case accelerating, with stronger inflows of work from both domestic and export clients.
There is also a generally positive story elsewhere in the world with only 2 countries - South Korea and Brazil (plus Greece in the Euro-zone) - having a PMI reading below the crucial 50 level that marks the boundary between expansion and contraction. In addition, most of them saw a higher PMI level in march, led by Sweden at 65.2 and Switzerland at 58.6; the most significant reduction was in Hungary which went from an exceptional 59.5 in February back to a more “normal” (and still strong) 56.0 in March.
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.
UK National Accounts and Business Investment data, 4th Quarter 2017: With the publication of the UK’s National Accounts by the Office for National Statistics, the estimate of growth of +0.7% on the previous quarter was confirmed, as was the growth rate of +1.8% for 2016 as a whole. It was also confirmed that manufacturing output was +1.2% higher than in the 3rd quarter, but with growth of only +0.7% for the year; this was because the sector had a rather see-saw year with growth in the 2nd and 4th quarters somewhat cancelled out by falls in the 1st and 3rd periods.
The most important new data (and probably the most gloomy) is for investment; Total business investment fell by -0.9% compared to the previous quarter and was down by -1.5% for the year as a whole. There was a much more dramatic fall in manufacturing investment which declined by -11.6% quarter-on-quarter and, in 2016, was -6.6% lower than for 2015. Within manufacturing, investment by the Engineering and Vehicles industry fell by -22.2% and -10.3% respectively. In both cases, the 4th quarter figure was exceptionally low.
You can download the ONS Statistical Bulletins on the National Accounts and Business Investment from their web-site at www.ons.gov.uk/releasecalendar or request them from MTA.
UK Productivity, 4th Quarter 2016 and International Comparisons for 2015: Data released by the ONS earlier this week showed that UK labour productivity (across the whole economy), measured as output per hour, grew by +0.4% compared to the previous quarter; for 2016, it only grew by +0.3%. The equivalent figures for the manufacturing sector were +1.7% and +1.8% respectively.
The conundrum in this area in the UK (which has largely defied explanation) is that having grown steadily from 1994 to 2007, UK productivity dipped in 2008 (as might be expected in the context of the recession at the time) but only recovered to its pre-recession level by the end of 2010 and, since, then, has more or less flat-lined. This was highlighted in the latest release of data showing international comparisons.
The headlines on this show that output per hour worked in the UK in 2015 was 15.9% lower than the average for the rest of the G7; by country, we were ahead of Japan and level with Canada, but behind Italy, the USA, France and Germany (the latter leads the way in terms of output per hour). This problem goes back to the recession where GDP per hour worked fell more sharply in the UK and is then compounded by the lack of recovery beyond 2011.
Unfortunately, the ONS does not include any international data on productivity in manufacturing, but as we have shown above, this sector of the UK economy has done relatively well in 2016, but this has not always been the case. Manufacturing productivity in the UK fell in 2015 while the whole economy showed an improvement and manufacturing had larger falls than the whole economy in both 2012 and 2013. This decade saw the 2016 situation repeated in 2010, 2011 and 2014.
You can download a range of ONS Statistical Bulletins on Productivity, including the international comparisons, from their web-site at www.ons.gov.uk/releasecalendar or request them from MTA.
BEAMA Contract Price Adjustment Service: Do you have long-term contracts, either with customers or suppliers? Have you thought about incorporating something in the contract that allows you to adjust the price according to changes in input costs?
On behalf of members, MTA subscribe to a service provided by our colleagues at BEAMA which gives a monthly track of key indices on labour and materials costs. Of course, you need to get the principle and the relevant formulas included in the contract, but this gives you a way of updating the relevant prices independently.
If you would like more details on this, please contact Geoff Noon (firstname.lastname@example.org) at MTA; we can send you a copy of the latest report and some typical formulae and can have a discussion about whether or not this would be useful for you.