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ECONOMIC DATA THIS WEEK

PMI, UK and Euro-zone, October 2018:  The Purchasing Managers Index (PMI) for the UK manufacturing sector fell sharply, but at 51.1 it remains in positive territory.  The PMI is a composite index based on output, new orders, employment, stocks of finished goods and input prices, so it does not directly track confidence, but it seems likely that this relatively weak outcome is influenced, at least in part, by the uncertainty around the Brexit negotiations during the data collection period (12-26 October).  The report notes that both new orders and employment fell for the first time since July 2016;  this was coupled with a slower rate of growth for output.  However, it is worth pointing out that the weakness in total new orders was concentrated in the consumer goods sector, with investment and intermediate goods both posting a modest expansion.  Export orders declined with some companies reporting Brexit uncertainty as the main cause, although others noted rising global trade tensions and weaker demand from the Automotive industry world-wide.

We saw something similar in the Euro-zone data;  the overall PMI reading fell, but remains above 50, with export orders (which were negative for the first time in 5½ years) leading to a fall in order books - this was closely linked to weakening global trade.  This trend was repeated in most of the countries with the exceptions being Spain where the PMI increased marginally and Italy where the trend of falling PMI led it to be below the crucial 50 level and at its lowest in 46 months.

Elsewhere in the world, most countries also saw their PMI reading lower than in September;  although not quite the largest fall (that was in Switzerland, but the index there was still very strong at 57.4), the most dramatic reduction was in Taiwan where, over two months, the PMI has gone from a healthy 53.0 to a negative at 48.7 in October.  The only other country below 50 was Turkey, but here the index did improve (indeed, it was the largest improvement among the countries that we track) compared to the September reading although, at 44.3, it is still the weakest reading this month.  The other significant improvement was in Russia which moved back above 50, extending a run of improvements from a low of 48.1 in July.

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 or we have a summary report of charts which is available from MTA (contact Geoff Noon - gnoon@mta.org.uk).

European GDP, 3rd Quarter 2018:  The preliminary flash estimate from Eurostat shows GDP in the Euro-zone growing by +0.2% compared to the 2nd quarter and by +1.7% over the past year.  For the EU28, the changes were +0.3% for the quarter-on-quarter change and +1.9% for the annualized rate.

All of these represent a slower pace of growth than in the 2nd quarter of the year, but as there is no commentary or country breakdown in this initial release, we will have to wait a couple of weeks to get more information on what lies behind these trends.

You can download the Eurostat News Release from their web-site at https://ec.europa.eu/eurostat/news/news-releases (30 October) or request it from MTA.

European Commission’s Economic Sentiment Indicator, September 2018:  The European Commission (EC) takes a range of business surveys, including those from the CBI to construct a sectoral confidence indicator for both the Euro-zone and the EU28.  In October, the overall Economic Sentiment Index (ESI) fell for both the Euro-zone and the EU28 for the second consecutive month.

Within the overall ESI, industry confidence in the Euro-zone posted its largest decline since March;  this reflects managers’ worsening assessments of the stocks of finished goods and the current level of order books, although expectations for production over the coming 3 months were flat.  This decline was less pronounced in the EU28.  Going back to the Euro-zone, assessments of production over the past 3 months and export order books also worsened.

Also this month, we have the latest indictors of capacity utilisation;  for manufacturing, these show a small fall for both the Euro-zone and the EU28, but the overall level remains relatively high in historical terms.  The UK saw the utilisation rate fall to 80.1, its lowest level since the 2nd quarter of 2016 and it is back below its long-run average for the first time in two years.  Although they remained above their trend levels, there was a similar fall in the capacity utilisation rate in Germany and Spain, but the readings for France and Italy were unchanged on the previous quarter;  among other significant manufacturing nations, Austria, Netherlands and Sweden all saw a small fall in capacity utilisation while remaining at high levels overall.

You can download the Economic Sentiment report from the European Commission’s web-site at http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm or request it 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 (gnoon@mta.org.uk) 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.