UK Manufacturing Output, August 2020: The headline from the latest data for manufacturing output from the Office for National Statistics (ONS) shows growth of +11.3% in the latest 3 months (June, July and August) compared to the previous 3 months (March, April and May). However, the month-on-month rate for August was only +0.7%, by far the slowest rate since the recovery started in May. One factor that is a part of this story is that the usual seasonal adjustments to the data have been skewed by the impact of Covid-19 on the economy and, in particular, the concentration of holidays in August which, in “normal” times also spread in to July. Despite the growth, manufacturing output is only at 91% of the February level and in the latest 3 months it shrunk by -11.4% compared to the same period last year (June, July and August 2019).
Below the headline, the capital goods industries did slightly better with the rolling 3-month growth rate at +15.6% and month-on-month growth of +1.4% in August. However, this sub-sector suffered most in the Spring and output in the latest 3 months is still -20.4% lower than at the same time in 2019 and the August level is only 85% of that recorded in February (which in this case was not the pre-pandemic peak).
At first glance, the 3-month rolling growth rate of +114.4% in output of the automotive industry looks spectacular but it is driven by the fact that April and May (extremely weak months for this industry) are now both “below the line” and output in the latest 3 months is still -40.6% lower than in the same 3 months in 2019. The automotive industry did have the strongest month-on-month growth among the industries that we monitor closely but this was only +3.8% and the August level stands at 74% of that recorded in February.
We see a different pattern in the aerospace industry but before going into this in detail, it is worth noting that output only fell by -6.0% in March (automotive output fell -31% in March over February) and that this industry did not see month-on-month growth resuming until July (the others have seen positive trends since May). In the latest 3 months, output of the aerospace industry was -12.5% lower than in the previous 3 months and -24.0% down on the same period last year. August saw month-on-month growth of only +0.7% and the level in this month is only 72% of that recorded in February - the latter measure is the lowest of the 4 industries that we track.
In contrast, both the machinery and metal products industries had output in August at 86% of the levels in February. The machinery industry has been more volatile with output in the latest 3 months (June, July and August) +21.6% higher than in the previous 3 months (March, April and May) but -22.9% lower than a year earlier (June, July and August 2019). For the metal products industry, about half of which is sub-contractors working in metal, these trends were +9.7% and -14.5% respectively. Month-on-month growth in August was +1.1% for the machinery industry and +1.7% for metal products.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (09 October) or request it from MTA; we also have an analysis of the key industries which is available to members - please contact Geoff Noon (firstname.lastname@example.org) if you would like these charts.
UK GDP, August 2020: The other data released today by the ONS is the monthly GDP estimate for August. As with the manufacturing output data, while we normally focus on the 3-month rolling trends, the month-on-month data is also useful at the moment in tracking the pace of the recovery from the low point in April.
The headline figures show that UK GDP grew by +2.1% in August, below what many analysts had expected (our colleagues at Oxford Economics had pencilled in +3.8%), with growth of +8.0% in the latest three months (comparing June, July and August to March, April and May). This still leaves the UK economy -9.2% smaller than the level in February 2020 before the full impact of the Coronavirus pandemic.
The manufacturing data in the previous note showed only modest growth in August - incidentally, this is consistent with our own Business Survey which suggests there was a distinct pause in August which looks to have been followed by a resumption of growth in September. Both the construction and services sector saw a significant deceleration in growth rates in August, although this is to be expected given the “bounce” effect that was happening in June and July.
While not directly relevant to MTA members, activity in the service sector in August was driven by growth in the accommodation and food sub-sector which was boosted by the “Eat Out to Help Out” scheme and the impact of travel restrictions which led to more people holidaying in the UK. This sub-sector contributed two-thirds of the monthly growth in the services sector, which adds to the suggestion of a pause in the recovery in August.
There are more details in ONS Statistical Bulletins for July GDP which can be download from their web-site at https://www.ons.gov.uk/releasecalendar (09 October) or requested from MTA.
Purchasing Managers Index for Manufacturing, September 2020: As an update on the report in last week’s Friday Brief (see https://www.mta.org.uk/resources/purchasing-managers%E2%80%99-index-pmi-2), the figures for South Korea and Taiwan were released on Monday. This new data showed that Taiwan had a strong acceleration of the growth rate and although South Korea was also up compared to August, it remains (just) in negative territory at 49.8.
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; our set of summary charts has been updated and can be accessed via last week’s article (see above for the link).
Euro-zone Business Investment and Profitability, 2nd Quarter 2020: Data released this week by Eurostat shows a recovery in the rate of profitability amongst non-financial corporations almost reversing the sharp decline in the 1st period of the year. The profit share is defined as the gross operating surplus divided by gross value added; the recovery in the overall ratio in the latest quarter came as a result of the compensation of employees (wages and social contributions) plus taxes less subsidies on production falling more rapidly than the fall in gross value added.
In contrast , there was a sharp fall in the business investment rate although it had been at a high historical level in the previous two quarters as a result of the treatment of imports of intellectual property. The business investment rate is defined as gross fixed capital formation divided by gross value added and the fall in the ratio in Q2-20 was driven by the reduction in the first of these measures.
The Eurostat News Release can be downloaded from their web-site at www. http://ec.europa.eu/eurostat (02 October) or requested from MTA.