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ECONOMIC DATA THIS WEEK

UK Manufacturing Output, November 2018:  The headlines from the manufacturing output data released this morning by the Office for National Statistics make rather gloomy reading with total manufacturing output in the latest 3 months (September, October and November 2018) falling by -0.8% compared to the previous period (June, July and August 2018) and by -0.4% compared to a year earlier (September, October and November 2017). In particular, the ONS notes that most of the industries showed a decline, with Automotive making the largest negative contribution - we will return to this later.  It is also worth noting that with this data release, the ONS has revised the figures back to the start of 2017.

At the sub-sector level, output of the Capital Goods industries (which includes most of the customers of manufacturing technology suppliers) output also fell by -0.8% comparing the latest 3 months with the previous 3 months, but looking back to the equivalent period in 2017, the fall in output was greater than that for total manufacturing at -1.2%.

For the 4 key industries, the data is equally gloomy;  we have already mentioned Automotive where output fell by -2.5% comparing the latest 3 month period with the previous 3 months and by -4.3% when compared to a year ago.  Even this hides more worrying data in that both October and November were weak months for output in this industry - apart from the exceptional months in June 2017 and February 2016, you have to go back to early 2015 to find output this low.  Data from SMMT suggests that it is vehicle output that is falling and although this has consequences for the demand for engines in the UK market, overall output of engines is holding up thanks to an increase in exports.

We have seen something similar in the Aerospace industry - although the ONS data does not seem to fit with the anecdotal evidence for this industry - but here at least the decline appears to have levelled off.  As a result, output (in the latest 3 months) was only -0.3% lower than in the previous period but is -5.4% down on a year earlier.

The evidence from the data on the Machinery industry looks to be confirming our view that the high levels of output that we saw around the start of 2018 were an exception and that this industry is now settling into a period of little change at a good level.  Output fell by -1.1% compared to the previous 3 months and by -2.5% over a year earlier (if our assumption is correct, we should see the short-term comparison around zero, but the “year earlier” trend will become more negative before easing towards the middle of 2019).

Finally, the Metal Products industry (which includes most of the sub-contractor activity) actually saw output increase by +0.1% compared to the previous 3 months although it declined by -1.4% compared to a year earlier;  a weak November followed strong months in September and October, so it remains to be seen where the real trend lies.

You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (11 January) or request it from MTA;  we also have an analysis of the key industries which is available to members - please contact Geoff Noon (gnoon@mta.org.uk) if you would like these charts.

UK GDP, monthly estimate for November 2018:  The ONS also published its estimate for GDP this morning;  this showed that UK GDP grew by +0.3% in the three months to November, with month-on-month growth of +0.2% for the month itself.

As would be expected given its size, the service sector is the main driver of this trend;  output in this sector has improved gradually since the low point in September and we look to be on course to getting growth of around +0.3% for the 4th quarter as a whole.  If achieved, this would give us growth of +1.4% for 2018 as a whole, making this the weakest year since 2012

It is also worth noting that the construction sector grew strongly in the latest 3 months, although in this case, it was September that provided the main impetus to this, so the headlines there are likely to be that output in the 4th quarter will have slowed.

There are more details in the ONS Statistical Bulletin which you can download from their web-site at https://www.ons.gov.uk/releasecalendar (11 January) or request from MTA.

UK Productivity, 3rd Quarter 2018:  Labour productivity across the whole economy, measured by output per hour, was only +0.2% higher than a year earlier;  however, the manufacturing sector saw productivity growth of +1.7% over this period, with the total being held back by the much larger service sector which only saw growth of +0.1%.  Compared to the 2nd period of 2018, whole economy productivity (output per hour) declined by -0.4% but grew by +0.3% for the manufacturing sector.

The ONS provides a breakdown of the manufacturing sector (and also for services) which suggests wide range of outcomes within the overall improvement.  Taking the data for output per hour and looking back to the same point in 2017, the changes in productivity range from -4.2% for the Machinery industry up to +9.9% for the Other Manufacturing category.

The drivers of the trends in productivity are not clear in the ONS Bulletin other than explaining that the improvement in manufacturing output over the previous year as being because output grew while hours worked fell over this period.

The ONS Statistical Bulletin is available to download from their web-site at https://www.ons.gov.uk/releasecalendar (09 January) or can be requested 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.