UK Manufacturing Output , September & 3rd Quarter 2022: The manufacturing output data from the Office for National Statistics (ONS) shows no change in September (compared to August) but the quarterly figure is -2.3% lower than in the 2nd period of the year. In this note, we will focus mainly on the quarterly data with three comparisons covering the previous quarter (Q2-22), the same period a year ago (Q3-21) and the pre-pandemic level (for the quarterly figures, this is Q4-19, although for manufacturing as a whole, output was higher in Q1-20).
In addition to the quarter-on-quarter fall noted above, total manufacturing output was -5.6% lower than a year ago although it stands at 102.4% of its pre-pandemic level. It is important to note however that this is the first release of quarterly data since the ONS’s revisions to economic data which showed an extremely strong recovery in manufacturing (and some of the industries) during the 2nd half of 2020 and through 2021. As a result, the latest quarterly figure for manufacturing output is the lowest since the pandemic affected 2nd quarter of 2020 and output in September was only 98.5% of its pre-pandemic level (in this case taken to be February 2020).
Drilling down into the detail, the next level is the sub-sectors of the economy where capital goods is of most interest to us. Output for this group in Q3-22 was -1.4% lower than in the previous quarter, -7.1% down on a year ago and 98.2% of its pre-pandemic level. Long-term, this is the weakest of the sub-sectors which, with the exception of consumer durables (98.7%), are all above their pre-pandemic level, although intermediate goods saw a sharper fall in output in the latest period.
At the industry level, the picture is similarly down-beat although there is one piece of good news which we will save so we can end on a positive note! The automotive industry saw a quarter-on-quarter fall in output of -2.4% and was -5.4% lower than a year earlier, with the latest figure only 71.5% of its pre-pandemic level. This data is seasonally adjusted although factory shutdown timings may have influenced the monthly pattern with August being particularly weak, followed by a significant recovery (+6%) in September so we will have to wait for a month or two to see the real trend for this industry.
The picture for the diverse machinery industry is much gloomier with output having fallen in 7 of the 9 months of 2022; output in Q3-22 fell by -2.7% compared to the previous quarter and by -13.0% over the level of a year ago. However, this is one of the industries where the revised data from the ONS now has an exceptionally strong recovery in output during 2021 so the latest figures are 111.1% of the pre-pandemic levels.
We see a similar pattern for the metal products industry which has also had negative monthly trends for 7 of the 9 months of 2022 and where output in the 3rd quarter was -5.0% down on Q2 and -12.7% lower than a year ago. Unlike the machinery industry, metal products does not have a strong post-pandemic bounce so the latest data shows output at only 84.2% of the Q4-2019 level.
As promised, we will end with the good news which comes from the aerospace industry, although we need to add the caveat that this is another area where the recent revisions to the data from 2020 onwards have made a significant change to the picture painted by the output data, not least to showing strong growth in the first 3 quarters of 2021. The latest figures show quarter-on-quarter growth of +1.0%, although this is -5.9% lower than a year ago thanks to the growth we saw in that period. Perhaps a better indicator is that the latest output figure is 117.6% of the pre-pandemic level, the strongest among the engineering industries.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (11 November) or request it from MTA; we also have an analysis of the key industries which is available to members – please contact Geoff Noon ([email protected]) if you would like these charts.
UK GDP, September and 3rd Quarter 2022: With the monthly output data release, the ONS produces an estimate of GDP – the measure of activity for the whole economy – and, of course, publication of the September data gives us the first view of the 3rd quarter as a whole.
As with the manufacturing data above, we will concentrate on the quarterly figures but it is worth noting that the UK economy shrank by -0.6% in September. This came from the services sector which was disproportionately hit by the extra Bank Holiday for the Queen’s funeral – unlike other days where some activities increase with more leisure time, this occasion saw many businesses in the service sector closed for at least a significant part of the day.
Despite this sharp monthly fall, it is the quarterly data that attracts the headlines because it points to the UK economy being in recession, a situation that was foreseen by the Bank of England at its latest meeting which predicted a shrinking economy for 8 quarters through to the middle of 2024. However, the figure of -0.2% for Q3-2022 was actually less bad than had been anticipated thanks to significant upward revisions for July and August which almost balanced the sharp fall in September. While this may well get revised given some issues with the trade data, the outlook for Q4 is very finely balanced; October should be a positive month simply because it does not have any extra bank holidays but the rest of the quarter is likely to be negative, so it remains to be seen whether or not the recession has started with Q3.
We have already noted the quarterly fall in manufacturing output although it is worth adding that all 13 of the sub-sectors saw a decline in output in Q3-22 (automotive and aerospace are combined as transport equipment at this level, hence the fall). Also, this was the only sector to see a fall in output – the service sector was unchanged on the Q2 level and construction grew by +0.6%.
There is a wide spread of trends within the service sector with a sharp quarter-on-quarter fall in output for the wholesale & retail sub-sector (this is where we see the impact of the Queen’s funeral bank holiday) and other service activities (driven mainly by personal services such as hairdressers). This is balanced by increases in education and financial & insurance activities.
For construction, the growth in output was driven entirely by new work as activity in repair & maintenance fell compared to the previous quarter. However, this increase in output was the weakest since a fall in output in Q3-2021.
There are more details in the range of ONS Statistical Bulletins which can be downloaded from their website at https://www.ons.gov.uk/releasecalendar (11 November) or on request from MTA.