CBI Industrial Trends Survey, April 2021: The CBI Industrial Trends Survey (ITS) results published this week show a strong pick-up in optimism in manufacturing (this was also seen in the latest MTA Business Survey) - this improved at its fastest pace since 1973. This survey was carried out between 24th March and 14th April so we will refer to the three months period covered by most questions as 1st quarter.
Output volumes in Q1-21 were broadly flat; growth in 11 of the 17 manufacturing sub-sectors, led by the electronic engineering and aerospace groups, was off-set by declines in both food & drink and automotive. However, the respondents to the survey expect output volumes to pick up in the 2nd quarter with the predictions here at their strongest for 4 years.
Going back one step in the business process, total new orders in the 1st quarter grew at their fastest pace for two years, although this was only seen in domestic business with export orders flat compared to the previous quarter. However, this is still good news as this is the strongest outturn for two years for overseas demand.
This is one of the longer quarterly surveys that gives us some pointers on investment intentions. The improvement in business sentiment has clearly led to the turnaround here with the balance for investment in plant & machinery at its highest level since July 1997; this is exactly a year after the lowest ever level which was recorded as the UK entered the first lockdown. There is also some encouragement from the constraints on investment with a sharp fall in “uncertainty about demand” which was at its lowest since Q1-2018 and only a small increase in “inadequate return" holding back capital expenditure. It is not possible to know (at least yet) the extent to which the new super-deduction allowance has boosted investment intentions but it seems likely to be at least part of the story.
The indicator of capacity utilisation from the ITS also shows an improvement and, at 79%, it at its highest since Q4-19 - in this context, this is the pre-pandemic data point.
You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (22 April) 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, April 2021: Today is the release date for the flash indications from the Purchasing Managers Index (PMI), although the figures for the USA won’t be out until this afternoon. The UK PMI for manufacturing is estimated to be 60.7, its highest level since July 1994. This was led by the steepest rise in new orders since November 2013 - orders are, of course, the precursor to the other aspects of business leading to sales, jobs and purchasing activity, so this bodes well for a strong recovery over the Summer. However, part of this strength also came from another lengthening of suppliers’ delivery times which, while normally a good sign for activity, is being caused by Covid related delays and, in some parts of manufacturing, a shortage of micro-chips and adds a note of caution to the high numbers.
In the Euro-zone, the PMI for manufacturing reached a new record high of 63.3 with the sub-index for output also at an all time high (the series started in June 1997). This came despite both Germany and France just edging down from their own records in March and was driven by record highs in the other Euro-zone countries covered by IHS Markit who compile this data. It is, perhaps worth noting that the service sector PMI in the Euro-zone rose a little compared to March and was above the crucial 50 level for the first time since last August despite the new round of lockdowns in some countries (the data was collected between 12th and 22nd March).
Publishing schedules mean that the US data is not yet available but we do have the figures from Japan; the flash reading of their PMI for manufacturing rose to 53.3 which is the highest rate since April 2018 but it is noticeable that the rates of expansion are lower than in Europe.
These reports are available on the IHS Markit web-site at http://www.markiteconomics.com/Survey/Page.mvc/PressReleases or on request from MTA.
UK Productivity, 4th Quarter 2020: The Office for National Statistics (ONS) has published its analysis of productivity in the UK in the final quarter of last year. To begin with a technical note, productivity is best measured by output per hour which will take account of short-time working, although output per job is also used - because this ignores how long has been worked, it shows the impact of short-time working more clearly but is of less use in policy terms.
So, while output per hour for the whole economy was -0.7% lower than at the end of 2019, output per job fell by -5.8%. looking at the year as a whole, output per hour increased by +0.4% while output per job fell by -9.5%.
Another impact of the Coronavirus outbreak is the concentration of its effects in the customer facing elements of the service sector and, therefore, the relatively good performance of the manufacturing sector. This is reflected in the productivity data where output per hour in Q4-20 was +3.9% higher than a year earlier and output per job also increased, this time by +0.4%. For 2020 as a whole, output per hour worked in manufacturing was +3.6% higher than in 2019, although there was a fall in output per job of -7.5%, but this is still less than for the whole economy.
There is also a limited breakdown of manufacturing by industry where, comparing Q4-20 with a year earlier, output per hour for the basic metals & metal products group increased by +10.4% and the machinery industry saw growth of +4.0% but there was a reduction of -2.1% in the transport equipment category (this covers both automotive and aerospace industries).
You can get more details from the ONS Statistical Bulletin which can be downloaded from their web-site at https://www.ons.gov.uk/releasecalendar (19 January) or you can request it from MTA.