Flash PMI for Manufacturing, December 2020: The flash PMI reports are based on data received up to 14th December, giving an early indication of the results ahead of the final data being released at the start of 2021. The composite PMI for the whole UK economy showed a return to positive territory after the dip in November; this reflects an improvement in activity in the manufacturing sector coupled with a less negative reading for the service sector.
The UK manufacturing flash PMI was 57.3 which, if confirmed, will be the strongest since November 2017. However, while still above 50, the output element of the overall PMI was down on the November level, while new orders grew at their fastest rate since August.
The Euro-zone also saw an improvement in its manufacturing PMI in the flash “December” reading (the data collection period starts on 4th December so the trends really reflect November activity) with the overall PMI of 55.5 matching the level we saw in May 2018. The Euro-zone also saw an improvement in the output in contrast to the UK while the other measures such as orders and employment were on similar trajectories.
The Flash PMI readings are only published for a few countries and within the Euro-zone, Germany saw a further acceleration in activity from what was already a strong level, while France returned to positive territory following the dip recorded last month.
Elsewhere, the only countries with flash PMI reports are Japan and the USA; the former is continuing its slow return to positive readings with the latest flash figure of 49.7 (just below the crucial 50 level that marks the boundary of growth and contraction) being the best for Japan since it entered its run of negative readings in May 2019 and helped by a fractional increase in manufacturing employment. The manufacturing PMI reading for the USA fell back marginally to 56.5 but it remains at a robustly positive level.
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; we will bring you the final data in our first Friday Brief of 2021 and this will include the usual chart report.
European Industrial Output, October 2020: Data from Eurostat shows that total industrial production in the Euro-zone was +2.1% higher than in September, with an increase of +1.9% recorded for the EU as a whole. Compared with October 2019, this leaves output in the Euro-zone down by -3.8%, with a decline of -3.1% for the EU. During the recovery, a gap opened up between the EU and the Euro-zone with the main divergence being a stronger performance for the non-Euro-zone countries in July and August.
Looking in more detail, the capital goods industries continue to lead the way in the month-on-month recovery with growth of +2.6% in both the Euro-zone and the EU compared to September. However, part of this is because this sub-sector was hardest hit during the downturn; this is illustrated by the fact that looking back to October 2019, the capital goods industries have the largest decline in output with a fall of -8.2% for the Euro-zone and -7.1% in the EU.
Looking back to October 2019, of the 25 Member States who have published their figures, 9 registered an increase, one was unchanged (Portugal) and 15 declined. However, it is interesting to note that the only Euro-zone country to record an increase in total industrial output over the past 12 months was Belgium (+5.4%), with Poland (+3.4%, Croatia (+2.8%) and Hungary (+2.7%) the other strongest countries. The most significant reductions in output over the 12-month period were Ireland (-15.5%), Denmark (-9.2%), France (-4.3%) and Germany (-4.1%).
The Eurostat News Release can be downloaded from their web-site at www. http://ec.europa.eu/eurostat (14 December) or requested from MTA.
Bank of England Agents’ Summary of Business Conditions, 4th Quarter 2020: The latest summary from the contacts made by the Bank of England’s Agents shows that manufacturing activity remained weak overall with a note that aviation (presumably aerospace) was particularly weak and automotive output softened again in the final period of the year. These two sectors had a knock-on impact on steel.
There are signs of the impact of Covid-19 restrictions throughout these notes. While suppliers to the food service reported a decrease in activity that was not balanced by an improvement in demand from supermarkets, manufacturers of computers and electrical goods reported an increase based on people equipping themselves for working from home and by consumer demand.
A portion of companies in manufacturing said that they were not yet ready for the introduction of new trading arrangements with the EU. While some contacts reported a boost from pre-Brexit stockpiling, this was not on the scale seen ahead of previous deadlines.
Investment intentions remained subdued overall, driven by concerns over the strength of the recovery, uncertainty about the outlook, and cash positions which meant that most investment was for replacement. In manufacturing, some contacts reported postponing investment, citing the uncertainty caused by the pandemic and EU withdrawal, but others said they had resumed or continued investment, for example in expanding factory capacity, replacing equipment, or in automation to improve productivity.
You can get more details of the Bank of England’s Agents report from their web-site at https://www.bankofengland.co.uk/agents-summary/2020/2020-q4 - there is also a link to the report of the Bank’s Decision Maker Panel on the impact of Covid-19 on UK businesses.
UK Trade by Industry, 3rd Quarter 2020: Data from HMRC and analysed by the ONS shows an increase in both exports and imports of manufactured goods compared to the 2nd quarter of the year but that the level is still below that of a year earlier (Q3-19). This is a pattern that is repeated across all of the engineering industries within manufacturing so we will pick up a couple of highlights rather than going through all of the details.
Normally, the engineering industries - defined as metal products, machinery, electronics, electrical equipment, automotive and other transport equipment (which includes aerospace) - accounts for just over half of all exports of manufactured goods (by value) and a bit less than half of imports. While there was a small fall in the share for the engineering industries in imports in the 2nd quarter of 2020, this was not far from the usual range of variation from quarter to quarter; however, there was a very sharp fall for exports where, in Q2-20, the share of total manufacturing taken by the engineering industries was only 40%. This has recovered to 49% in the 3rd quarter but possibly has further to go.
The other point to highlight is around trade deficits (where imports are larger than exports) and surpluses (exports>imports). Normally, the only industry to have a trade surplus is aerospace and while there was a significant trade surplus (of £3.4 billion), the 3rd quarter of 2020 also saw a trade surplus for the machinery (sometimes known as mechanical engineering) industry – this was worth £817 million. The largest trade deficit was in the goods of the computer, electronic and optical products (electronics) industry at £5.9 billion.
You can download the data tables for all industries from the ONS web-site at https://www.ons.gov.uk/releasecalendar (16 December) 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 tables.
Finally, our analysis of the trade data for machine tools shows that exports in the first three-quarters of 2020 were -26.5% lower than in the same period of 2019 at £284.3 million, with shipments to the European Union down by -40% while business with the rest of the world only fell by -12%. This was mainly because of a very large shipment recorded in August to the USA which was the only major market to record an increase compared to 2019, although there was a small rise in exports to medium sized markets such as Czechia and Turkey.
Imports of machine tools in this period fell by -33.4% at £298.9 million. Here the EU/non-EU balance was closer with changes of -36% and -30% respectively.