CBI Industrial Trends Survey, July 2022: The trends identified in the latest CBI Industrial Trends Survey (ITS) show an easing of manufacturing demand with output and orders slowing to post-lockdown lows; however, both measures are still above their long-run average, so it is not all gloom. Employment in the sector continued to rise although labour shortages are still a problem for the manufacturing sector.
Output volumes in the 3 months to July (actually probably June given that the data collection period ran from 24 June to 12 July) increased at their slowest pace since the survey in April 2021 but at just above the long-run average. The output trend was positive in 10 of the 17 sub-sectors used by the CBI, with the strongest growth coming in food & drink and aerospace (at last some might add!). A similar pace of growth is expected in the next 3 months – broadly the 3rd quarter of the year.
The picture for orders is similar to output with slower, but above long-run average growth. Domestic orders growth slowed but the trend for export orders was broadly similar to April, albeit that export orders had slowed quite sharply to their long-run average level in the previous survey. The respondents expect new orders to grow at a similar pace over the next 3 months with export orders up but balanced to some extent by a marginally slower rate of growth for home demand, although neither of these are significant.
This is one of the quarterly surveys that brings us both investment intentions and capacity utilisation data. The improvements we have seen in output over recent surveys, notwithstanding the slower pace this time, means that the capacity utilisation rate (current rate of operation as a percentage of full capacity) has edged up back to the rate we saw in the January (effectively Q4-21) survey; this rate is the strongest since the April (Q1) 2018 survey.
Given the current economic and political uncertainty we might have expected a fall in investment intentions for spending on plant & machinery over the coming 12 months but there was, in fact, a modest improvement compared to the previous survey although not quite back to the levels we saw for the surveys covering the four quarters of 2021. This is encouraging for the manufacturing technology spectrum and suggests that the super-deduction scheme and extended annual investment allowance are still having a positive impact on plans for investment.
Compared to the April survey, investment to “expand capacity” picked up but it still remains the lowest of the main drivers of capital spending; both “replacement” and “to improve efficiency” fell back slightly with the latter at its lowest level since the October 2019 survey – this is perhaps slightly surprising given the increase in energy costs which might have been expected to drive investment in lower energy solutions but this is partly a result of fewer multiple responses to this question.
There is, perhaps, more interest in the factors that are restricting investment where reports of “uncertain demand” were at their lowest since July 1989 and reporting of “inadequate return” fell back to the level we last saw in October 2021 – both of these are, of course, well below their long-run average. There was also a fall in the reporting of a “shortage of labour” but this remains at an historically high level. On the financing side, reports of an “internal finance shortage” slipped just below its long-run average and, while it is only given by a few respondents, “cost of finance” was at its highest level in two years, probably prompted by the increase in interest rates.
You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (25 July) or request it from MTA – we can also provide a summary of the results and some charts around the investment intentions data.
UK Automotive Production, 2nd Quarter 2022: Data published by the Society of Motor Manufacturers and Traders (SMMT) puts UK car output at 195,784 in the 2nd quarter; this is -5.6% lower than in the 1st period of the year but is +1.8% higher than in the same months (April to June) of 2021. The total for the first half of the year is 403,131, which is -19.2% lower than in the first half of 2021.
However, this does hide to some extent the news that the rolling 12-month total of car production has edged up in both May and June. While SMMT note that supply chain shortages, especially for semi-conductors, persist alongside issues created by the war in Ukraine and both structural and model changes within the sector, they also suggest that the supply chain issues are starting to ease and it is probably this which has enabled the output data to turn the corner.
In their notes on this data, SMMT comment that output of battery electric vehicles has again proven to be a bright spot, with 32,282 produced in the first half of 2022 which is an increase of +6.5% on the same period in 2021. This was boosted by a +44.2% rise during June resulting in a record output of zero emission vehicles for the month.
This brings us to the other major part of the automotive sector (production of commercial vehicles is a relatively small number) – internal combustion engines. The trends here are similar with output in the 2nd quarter at 395,203, a reduction of -3.9% on the 1st quarter figure and only a smidgeon up on the 395,120 from the 2nd quarter of 2021. UK internal combustion engine production in the first half of 2022 was 806,476 – almost exactly double the number of cars that were produced – which is -13.3% lower than in the same months (January to June inclusive) of last year.
You can get the full details of the SMMT announcements by accessing the news stories on their website at https://www.smmt.co.uk/category/news/manufacturing/.
European Commission Economic Sentiment Indicator, Capacity Utilisation and Investment Survey, July 2022: The European Commission (EC) draws from a range of surveys to construct confidence indicators for six sectors of the economy and then uses five of these (financial services is not used) make up its Economic Sentiment Indicator (ESI). The other point to note is that, like the CBI survey above, although labelled as “July 2022” or “Q3-2022”, the data collection period was mainly in that month so the data really refers to June or Q2-22.
There was a sharp fall in the ESI for the EU and the Euro-zone which both fell below their long-run average (which is the base for the index) for the first time since February 2021 when much of the region was in lockdown. There was a significant fall in confidence across all of the six sectors, although it was only a small reduction for construction and retail trade was also not quite as bad as the other parts of the economy.
There are three elements to the calculation of confidence in the industry sector and both current order books and expectations for output over the coming 3 months fell to 20 month lows which, coupled with a sharp rise in stocks of finished products (which indicates weak sales), led to the substantial fall in industry confidence in the EU. Although not included in the calculation, the survey respondents’ views on export order books and production over the past 3 months also deteriorated significantly.
These patterns were repeated in most of the major EU economies, with the overall ESI falling significantly in Spain and Germany, while Italy and Poland had sharp but not quite as large falls; the overall ESI was broadly stable in France and edged up marginally in Netherlands. Across the EU, only 8 Member States have their ESI above the long-run average – France, Greece, Hungary, Italy, Lithuania, Malta, Portugal and Romania – with another two among the candidate countries who also participate in this project in Albania and North Macedonia (the others are Montenegro, Serbia and Turkey).
With this survey, we also have the latest indicators of capacity utilisation for manufacturing which show a modest reduction for the EU as a whole but virtually no change in the Euro-zone measure. The latter is at broadly the same level as in each of the two previous surveys but the EU measure is at its lowest since April (Q1) 2021; however, both measures remain well above their long-run average.
Among the larger economies, Spain, Poland and to a lesser extent the Netherlands saw a fall in their utilisation rate while France, Germany and Italy were at broadly the same level as 3 months ago. However, despite this, with the exception of France, capacity utilisation in all these countries is above the relevant long-run average. The UK is no longer part of this analysis and the measure we have is slightly different to that produced by the European Commission – most notably, the UK data is not seasonally adjusted. However, as we noted above in reporting on the CBI survey, there was a small increase for the UK and it is above the long-run average.
You can download the EC report and statistical annex 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.
UK Profitability, 1st Quarter 2022: The Office for National Statistics (ONS) publishes data tables for profitability – this is measured as the net rate of return which is defined as the net operating surplus (gross capital surplus less capital consumption at current replacement cost) divided by net capital employed (gross capital employed less accumulated capital consumption at current replacement cost).
The figures for the 1st quarter of 2022 show that profitability of UK manufacturing companies was 8.8%; this is just a fraction higher than the previous quarter (8.7% in Q4-21) but quite a bit lower than the 9.9% that was recorded a year earlier. It is also below the long-run average (back to 2000) of 10.9%.
The ONS only publish tables for this data-set and there is no commentary; you can download this from their website at https://www.ons.gov.uk/releasecalendar (27 July) or request them from MTA.