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ECONOMIC DATA THIS WEEK

Annual Business Survey, 2016:  This dataset from the Office for National Statistics (ONS) gives us some structural information about the UK economy and, most importantly for us, data at an industry level.  The headline figure is that gross value added at basic prices (aGVA) of the UK non-financial business economy was estimated to be £1,201 billion in 2016, an increase of +3.9% compared to 2015.

The definition of aGVA is the income (turnover) of UK businesses, less the cost of goods and services consumed in the production processes (purchases).

In contrast to the overall economy, aGVA for the advanced engineering industries only grew by +0.8% in 2016, with both the Automotive (-13%) and Aerospace (-3%) industries in negative territory, although the machinery industry saw an increase of +16%.

On the same basis, net capital expenditure by the advanced engineering industries grew by +29% in 2016.  In this case, although there was a sharp fall of -25% for the Automotive industry - this follows two very strong years - investment by the Aerospace industry grew by +68% and by +73% in the Machinery industry (although both of these appear to be either an exceptional year or a step change in the level of capital spending).

Unfortunately, much of the employment data is missing for 2015 which makes trend analysis difficult, but we do know that average employment in 2016 for all manufacturing industries was 2.53 million, of which 1.13 million were employed in the advanced engineering industries.  Within this total, 184,000 are employed in the manufacture of Machinery, 317,000 in the Metal Products industry, 159,000 in the Automotive manufacturing industry and 100,000 in Aerospace.

You can download the ONS Statistical Bulletin from their web-site at www.ons.gov.uk or request it from MTA;  we have created an analysis of the key industries, including our construct of Advanced Engineering, which is available to members - please contact Geoff Noon (gnoon@mta.org.uk) if you would like this analysis.

UK Profitability, 2nd Quarter 2017:  The latest figures from the ONS show manufacturing profitability (the net rate of return, defined as the economic gain as a percentage of capital used in production) was the same as the revised figure for the 1st quarter at 15.3%.  This is its highest level since a spike in the 4th quarter of 1996.

In part, this revision comes from new data about the UK’s capital stock (defined as the total physical capital within the economy) and the consumption of fixed capital that has just been published for 2017.  The UK’s net capital stock was estimated to have been £4.4 trillion at the end of 2016, an increase of +1.5% compared to 2015.  Typically, before the recession, net capital stock increased on average by +2.0% per year, so although the current rate is better than during the crisis, there is still room for improvement.

At the end of 2016, the service industries held an estimated 76% of total net capital stocks - this is not surprising given the size of this sector in the UK economy and the fact that capital stocks includes buildings and infrastructure (most assets are held in dwellings and other buildings).  What is, perhaps surprising is that the manufacturing sector accounts for only 6% of the total, while the other production industries (including extraction and utilities) account for just under 9%.

The ONS bulletin shows that between 1998 and 2016, manufacturing saw its share of assets fall by more than a quarter.  This happened because it is the only sector of the economy where the volume of net capital stocks (at 2015 prices) fell over this period.  However, it is also worth noting that it is the only sector where ICT and other machinery and equipment is the largest asset type (rather than either buildings and structures or dwellings).

You can download the ONS Statistical Bulletins on profitability and capital stocks  from their web-site at www.ons.gov.uk or request them from MTA.

USMTO and US CTMR, September 2017:  The US Manufacturing Technology Orders (USMTO) programme tracks orders received in the US market - the data in this report are based on the actual totals reported by companies participating in the USMTO programme.

In the first three-quarters of 2017, orders grew by +5.4% compared to the same period (January to September) of 2016.  Orders grew in 4 of the 6 regions used in the USMTO report, with the fastest growth being recorded in the South-Central (+54% - this is the smallest area and, therefore, likely to have the greatest fluctuation in percentage terms) and North Central-West (+10%) regions;  the declines in orders were recorded in the South-East (-9%) and North-East (-7%) areas.

The US Cutting Tool Market Report (CTMR) tracks sales of cutting tools in the US market and, like the USMTO programme, reports on the basis of the returns that are received.  The cumulative trend for the first 9 months of the year is +7.0% on the same months (January to September) in 2016.  There is no regional breakdown for cutting tools.

You can download the USMTO News Release from the AMT web-site at www.amtonline.org and the Cutting Tool News Release from www.uscti.com, or you can request both from MTA.

UK Business R&D, 2016:  Another structural dataset released recently by the ONS contains data on spending and employment on R&D broken down by product sector.  Total spending on R&D carried out by UK businesses grew by 5.6% in 2016 to reach a total of £22.2 billion.  The largest growth in expenditure was an increase of +20% by the Automotive industry - in value terms, this is the 2nd largest sector at £3.4 billion (15.2% of the total) behind only Pharmaceuticals (4.1 billion, 18.5%).

There has been a long-term increase in R&D spending by UK businesses that only slowed during the recession; Since 1992, the average annual growth rate was 4.3% per annum (in current prices), so the 2016 performance represents one of the strongest years.

Other significant industries for R&D are Aerospace which is the 4th largest industry (behind computer programming, software development and information service activities) where spending increased by +12% to £1.9 billion and Machinery & Equipment, although this saw spending fall by -6% to £912 million.

Just over half of all UK business expenditure on R&D was by UK-owned companies; this ratio has fallen from 73% in 1993 when the data series began, but is slightly higher than in 2013 when it was only 46.4%

You can download the ONS Statistical Bulletin from their web-site at www.ons.gov.uk or request it from MTA.