European Commission Economic Sentiment Indicator and Capacity Utilisation, November 2020: 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 included in the ESI) to compile its Economic Sentiment Indicator (ESI). Because of the data collection periods, the month is that in which the data is published, although it really refers to the previous month - in this case October.
The headline for “November” shows a marked fall in the ESI for both the EU and the sub-set of the Euro-zone compared to the previous month; this is a reversal of the recovery that ran from May to September.
Looking at the various sectors, there was a sharp fall in both the services and retail trade indicators, with a more modest reduction in consumer confidence and a relatively small reduction in the construction sector. However, the largest reduction of all was in the financial services sector (which is not part of the calculation of the ESI).
In contrast to most of these, industry only saw a modest reduction in confidence at a similar level to that seen in construction. Obviously, no fall in confidence is good news, but at least the trend for industry is less bad than most other parts of the European economy. This was driven by a continued improvement in the assessment of both stocks of finished goods and the current level of total order books (although the latter improved at a slower pace than in the previous month). However, the overall confidence level was held back by a speeding up in the pace at which expectations about output over the coming three months are falling.
Although not included in calculating confidence for the industry sector, it is worth noting that survey respondents continue to be more positive about the level of export order books but indications about the level of output over the previous 3 months was negative for the first time since May.
In the Spring and Autumn, the European Commission includes questions about investment intentions in the industry sector. For 2020, the outlook has, unsurprisingly, weakened significantly since the Spring survey with a substantial reduction in investment now expected for this year. A modest improvement is anticipated in 2021 with the outlook for the Euro-zone a little stronger than for the EU as a whole.
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 it can be requested from MTA.
UK Profitability, 2nd Quarter 2020: Analysis by the Office for National Statistics (ONS) shows that the net rate of return for manufacturing companies fell to 6.7% in the 2nd quarter of the year at the height of the Coronavirus crisis. This matches the rate we saw in the 1st quarter of 2010 which was in the early stages of the recovery from the financial crisis (it fell to a low of 5.6% in Q2-2009).
The rate of profitability in manufacturing companies had been falling from its most recent peak of 19.0% at the end of 2017 and was only just above 10% by the end of 2019.
There is no ONS Statistical Bulletin for this data series, but the data file can be download from their web-site at https://www.ons.gov.uk/releasecalendar (02 December) or you can request it from MTA.
Capital Stocks data, 2019: This data issued by the ONS is usually something that only really nerdy economists get excited about but there are a couple of general points arising from the latest release that are worth noting. While the net capital stock of machinery and equipment only increased by +0.1% between 2010 and 2019 (this data tends to make more sense over longer periods), the net capital stock of transport equipment increased more strongly at +2.9%. This is partly driven by the increasing tendency for households to lease cars; this type of purchase is counted as adding to the estimate of net capital stock while cars purchased directly by households (without financing) are classed as consumer durables.
International comparisons show that in 2010, the UK had about half the amount of capital per hour worked in manufacturing as in Germany. Over the course of the decade (to 2018), the UK saw the amount of capital per hour worked in manufacturing grow more quickly than in Germany, France and Italy but the level remains below that of all three of these countries and is still 40% lower than in Germany.
There are more details in ONS Statistical Bulletin which you can download from their web-site at https://www.ons.gov.uk/releasecalendar (01 December) 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 (email@example.com) 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.