CBI Industrial Trends Survey, January 2022:  The latest results from the CBI Industrial Trends Survey (ITS) show that demand conditions are supporting a good level of activity in the sector but there is concern over labour shortages and cost/price pressures.  It is worth noting that although dated “January”, data collection took place from 20th December to 13th January so the results are likely to reflect the situation at the end of 2021 and references to “the last 3 months” are really about the 4th quarter of last year.

Although at a slower pace than in the previous survey, output growth was still strong at the end of last year and increased in 10 of the 17 sub-sectors, led by food & drink.  Manufacturers expect output growth to pick up in the first quarter of 2022 and reports that orders/sales were a factor in restricting output in Q1-22 were at their lowest level since January 1974.

The pace of growth in total new orders accelerated compared to the 3rd quarter of 2021 with faster growth in both home and overseas demand.  This pace is expected to slow at the start of 2022 with supply chain disruption continuing – the share of firms who said that delivery dates were a factor in restricting export orders was at its highest since October 1974.

The measure of capacity utilisation increased again with the current rate of operation as a share of full capacity registering 83 – this matches the level last seen in April 2018 and is among the highest of the survey’s history.

As one of the quarterly surveys, we also get an update in investment intentions;  plans for spending on plant & machinery over the coming 12 months (effectively 2022 in this survey) improved with the percentage balance (+26) at its highest level since April 1988.  There have now been 4 double-digit positive balances in a row on this question which is a stronger recovery than we saw after the global financial crisis and bodes well for MACH in April.  This improvement was reflected in the Transport Equipment (automotive and aerospace) and Metal Products sub-sectors but the Machinery sub-sector still has a significantly negative balance for investment intentions which adds a note of caution to the generally positive news.

Among the reasons given for authorizing capital expenditure, the need to increase efficiency ticked up compared to the October (Q3) survey while replacement fell back to its lowest level since July 2012 (Q2-12) and is below its long-run average.  Despite the strong capacity utilisation figures, spending to expand was broadly flat, although it is above the long-run average.  For the factors restricting investment, although inadequate return was higher than in the previous survey, it is still below the long-run average, as is uncertainty about demand which was also slightly higher than last time.  On the other hand, reports of labour shortages increased to their highest level since July 2020 – this was a freak figure at the height of the first wave of the pandemic and, apart from that, the latest figure would be a record high.  Reports of finance issues (either external or internal) restricting investment were lower than the previous survey and below their respective long-run averages.

You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (25 January) or request it from MTA – we can also provide a summary of the results and some charts around the investment intentions data.


Flash Purchasing Managers Index, January 2022:  At the start of the week, the initial reading of the Purchasing Managers Index (PMI) showed a fall in the reading for the UK, although at 56.9 it is still pointing to an expansion of activity in the sector.  For manufacturing, the PMI is a composite index made up of five elements – new orders, output, employment, suppliers delivery time (longer is considered good as a sign of increased activity) and stocks of purchases.  This is key to understanding the PMI at the moment as there was an increase in the output element of the index which reached its highest level for 5 months.

This is attributed to a turnaround in materials availability which meant that the false positive effect of suppliers delivery times eased and led to the overall fall in the manufacturing PMI reading.  However, it is important to note that supplier delays remains a significant constraint for the sector in the UK, as is the number of staff isolating due to Covid infections/contacts.  Another negative factor for the flash manufacturing PMI was that this was the worst month for order intake since this time last year with suggestions that forward ordering to beat new year price increases had affected demand.

The picture in the Euro-zone is both similar and different (if that is possible!);  the output element of the manufacturing PMI also accelerated to a 5-month high assisted by the easing of the suppliers delivery times but the net effect on the overall PMI for the sector was positive, taking the reading to 59.0 – this is its highest reading since August.  The other difference compared to the UK is that the flow of new orders accelerated and it is probably this that actually drive the different trends for the manufacturing PMI.

At this stage we only have separate analysis for Germany and France and the latest result paint different pictures.  In Germany, the overall manufacturing PMI rose to 60.5 with the output element also rising sharply to 58.4 (both are at their highest since August);  new orders were also strong and employment accelerated.  For France, the overall sector PMI fell very marginally and there was only a small improvement in the output element of the calculation;  here, the significant spread of Omicron seems to have more of an impact and there is also specific mention of supply chain problems persisting.

Outside of Europe, we have flash PMI readings for Japan and the USA.  In the former of these, the overall PMI edged up to reach its highest level since January 2018 with both output and new orders improving a little compared to the December 2021 reading.  In contrast, the USA is something of an outlier with the manufacturing PMI falling significantly to 55.0 (its lowest level since October 2020) and output growth almost stopping with that element of the calculation at 50.3;  the IHS Markit report notes that this is mainly due to a spike in Omicron cases on top of supply chain problems (including raw material shortages) and labour shortages.

These reports are available on the IHS Markit web-site at https://www.markiteconomics.com/Public/Release/PressReleases?language=en or on request from MTA.


Euro-zone Investment & Profitability, 3rd Quarter 2021:  Data from Eurostat shows that the business investment rate in the Euro-zone fell to 23.0% compared to 23.6% in the previous quarter and 23.4% in the 3rd period of 2020.  The gross investment rate of companies is defined as gross fixed capital formation divided by gross value added;  the fall in the rate of investment occurred because although fixed capital formation increased, it was at a slower rate than value added in this period.

Looking just at the investment data, after falling quarter-on-quarter in the first two periods of 2020 as the coronavirus pandemic began, there has been an increase in all but one of the following five quarters – the exception was the 2nd quarter of 2021 where investment fell very slightly.

There was also a fall in the profitability rate of companies in the Euro-zone;  this registered 40.4% in the 3rd quarter, lower than the 41.4% in the previous quarter but higher than a year earlier (39.7%).  This is calculated as gross operating surplus divided by gross value added and the downward movement came because compensation of employees rose more quickly than gross value added.

You can get more information on this by downloading the euroindicators release from the Eurostat website at https://ec.europa.eu/eurostat/news/euro-indicators (11 January) or we can send you a copy if you prefer.

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