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ECONOMIC DATA THIS WEEK

PMI, UK and Euro-zone, January 2019:  The Purchasing Managers Index (PMI) for the UK manufacturing sector published this morning showed a fall to 52.8 for January;  while it is not great news, especially in the detail, it is far from the weakness that we will see elsewhere - yet!  This reading is the second weakest since July 2016 and employment fell for only the 2nd month in 2½ years, but overall the sector is still expanding.  There are signs, however, that this may be Brexit related with companies reporting sharp rises in both purchasing activity and stockpiling of inputs to the manufacturing process - this almost inevitably means some weak numbers to come in the Spring, regardless of the outcome of the Brexit process.  Output volumes were weak, with IHS Markit (who compile the data) reporting that the investment goods industries saw their first decline in output since July 2016.  They also report that new orders fell in this sub-sector, with the consumer goods industries driving the little growth that there was overall.

The situation in the Euro-zone is weaker (although less distorted than the UK data) with the overall PMI only just remaining in positive territory at 50.5 - this is its lowest reading for over 4 years.  Although output increased marginally, the survey recorded the sharpest fall in new orders since April 2013.  Only Spain (52.4) and France (51.2 - returning to a positive level) had a better reading than in December, but perhaps the most concerning number is Germany slipping into negative territory at 49.7.  With the Italian PMI weakening to 47.8 - its lowest for 68 months - the two largest manufacturing economies in the Euro-zone both have a PMI below the crucial 50 level at the start of 2019.

Elsewhere in Europe, the Czech Republic, Poland and Turkey all remain in negative territory, although the middle one of these did manage a small improvement compared to December.  The PMI readings for Hungary, Sweden and Switzerland all had month-on-month falls but remained positive.

With publishing schedules meaning that we don’t have the data for the Americas, that just leaves Asia and the news from there is equally gloomy;  China, South Korea and Taiwan all remained below 50 and, along with Japan (50.3), all had a lower PMI reading than in December.  The only good news came from India where the PMI improved to 53.9 - they were one of only 4 countries globally to have a better PMI at the start of 2019.

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).

UK Automotive Industry Production, 2018:  The Society of Motor Manufacturers & Traders (SMMT) has published its full year figures for the production of cars, commercial vehicles and engines for 2018.  Car production fell by -9% compared to 2017 with a total of 1.52 million units produced - this is a 5-year low.  The decline was attributed to a range of factors with weaker demand in Europe and China blamed for the fall of -7% in exports, while the fall in UK new registrations which SMMT had already reported inevitably led to the reduction of -16% in the cars made for the UK market.

The UK market weakness was blamed on regulatory changes and issues related to the policy over diesel vehicles.  For overseas demand, car exports to China fell by -25% and EU demand was down by -10% compared to 2017, although the EU still accounts for over half of total UK car exports.  There was some good news with exports to the US up by +5% and an increase of +26% for Japan and +24% for Korea.

Although the volumes are much lower, production of Commercial Vehicles increased by +9%, with home shipments increasing by +18% and exports by +3%.  However, in both cases, the levels were still below the 2016 figures.

Finally, there was a very slight reduction (-0.3%) in the production of engines - arguably the most important part of the industry for suppliers of manufacturing technology - in 2018.  With the number of cars being made here falling, there was a parallel fall in the number of engines made for the home market - down by -16% compared to 2017 - while engines made for export increased by +13% and only just failed to take up the domestic slack.  As a result, the export ratio for engines increased to 62%, the highest ratio since 2015.

You can access the SMMT reports and news releases from their web-site at https://www.smmt.co.uk/category/news/manufacturing/ or request them and a data summary from MTA.

European GDP, 4th Quarter 2018:  The preliminary flash estimate released by Eurostat shows an increase of +0.2% in the Euro-zone and of +0.3% for the EU28 as a whole.  These are the same rates as for the 3rd quarter, although the annualised rates fell as the Q4 growth was lower than at the end of 2017.

For 2018 as a whole, Eurostat estimates that GDP grew by +1.8% in the Euro-zone and by +1.9% for the EU28.

There is no country detail yet, although separate data published from Italy shows that their economy has slipped into recession, with a -0.2% fall in GDP following a decline of -0.1% in the 3rd period of the year.

You can download the Eurostat News Release from their web-site at www. http://ec.europa.eu/eurostat (31 January) or request it from MTA.

European Commission Economic Sentiment Indicator, January 2019:  There was a sharp fall in the European Commission’s (EC) Economic Sentiment Index at the start of the new year in both the Euro-zone and the EU28.  In particular, there was a sharp fall in industry confidence in both areas;  this was driven by more pessimistic views of survey respondents on production expectations, the current level of orders books and stocks of finished products.  There was also a fall in the assessment of past production and export order books, although these are not included in the measure of confidence.

This was one of the quarterly surveys that covers additional indicators;  the main one of interest for us being the figures for capacity utilisation.  The Euro-zone and EU28 manufacturing capacity utilisation rates were both unchanged from the previous quarter and remain significantly above their long-run averages.  For the UK, following a sharp fall in the October survey, the manufacturing capacity utilisation rate recovered a little and matched the level we saw at the start of 2018, but is below where it was in the middle of last year.

Capacity utilisation in Germany fell to its lowest level since the start of 2017 but remains above the long-run average.  In contrast, there was an improvement in Spain where capacity utilisation reached its highest level since the start of 2008;  Italy also saw a modest improvement which took its rate up to the level last seen in April 2007.  The rate in France fell slightly but is still above their long-run average.

You can download the EC report from their web-site at https://ec.europa.eu/info/business-economy-euro/indicators-statistics/economic-databases/business-and-consumer-surveys/download-business-and-consumer-survey-data/press-releases_en or you can 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.