UK Manufacturing Output, May 2021: The Office for National Statistics (ONS) released the manufacturing output data for May at the end of last week. Following “no change” in April, there was a marginal reduction in May but our preferred measure of the 3-month rolling trend showed that total manufacturing output in the latest 3 months (March, April and May 2021) was +1.5% higher than in the previous 3 months (December 2020 and January and February 2021) and was +21.8% higher than the same period a year ago (March, April and May 2020). The latter figure, while impressively large, is fairly meaningless given the significant impact of the pandemic which was concentrated in April and May last year.
The monthly figure for May left total output at 97% of the February 2020 level - in monthly data this is taken to be the “pre-pandemic” level (for calendar quarters we use Q4-19). Although there was an overall fall in manufacturing output in May, this only applied to 5 of the 13 sub-sectors/industries within the total – we will see later why this happened.
As we drill down into the detail we start to see where the current problems lie as output of the capital goods industries only increased by +0.1% comparing the latest 3 months with the previous period. This was by far the weakest of the sub-sector groupings which were led by growth of +3.4% for consumer non-durables. Indeed, output of capital goods fell by -6.4% between April and May.
This brings us to the industries and it is in the automotive industry that we see most of the problems; output of this industry fell by -27.0% in May and by -13.6% in the latest 3 months compared to the previous period. We have seen a similar trend in the data from SMMT on car and engine output although in that case there was a much sharper reduction in April. While the difference in timing is not entirely clear, the reason is well known with the shortage of electronic components leading car manufacturers globally (not just in the UK) to reduce output levels. This is likely to persist for a few months at least and will have an impact on the demand for tooling from this industry - the effect on investment is less clear at this stage (please refer to our separate article about car sales). As a result of these falls, the level of output in May was only 65% of its pre-pandemic level.
Although not on quite the same scale, there is also disappointing news from the aerospace industry where output fell modestly in May for the 4th consecutive month and the latest 3 months saw a reduction of -2.2% compared to the previous 3-month period. However, perhaps the most dramatic illustration of the problems in this industry is that output in the latest 3 months was -12.3% lower than the same period a year ago at a time when all the other industries are showing a strong positive trend because of the distortions of a year ago. Output of the aerospace industry is only 61% of its pre-pandemic level.
Despite the difficulties in the automotive and aerospace industries, output of the metal products companies (about one-third of which by value is sub-contractors) grew by +2.2% comparing the latest 3 months with the previous period. May saw the 3rd consecutive month-on-month increase in output and stands at 97% of the pre-pandemic level.
We have saved the best until last; thanks to a very strong figure for March which was more or less sustained in the following two months, output of the machinery industry in the latest 3 months grew by +7.9% compared to the previous 3-month period and output in May was at 104% of the pre-pandemic level. This strong growth will change next month with March moving into the “previous” category, but this is encouraging news, nonetheless.
You can download the ONS Statistical Bulletin from their website at https://www.ons.gov.uk/releasecalendar (9 July) 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 charts.
UK GDP, May 2021: The monthly GDP data from the ONS came out below expectations with month-on-month growth of only +0.8% (April had seen growth of +2.0%, revised down from +2.3% as originally published) and although this is the 4th consecutive month of growth, the UK economy is still -3.1% smaller than in February 2020 (the “pre-Covid” level).
We have already discussed the drivers of the fall in manufacturing output in May but it is worth noting that the wider production sector saw growth of +0.8% - this was mainly because the poor weather that month boosted output of electricity and gas. There was a 2nd consecutive fall in output in the construction sector, although this does follow very strong growth in both February and March which means that this is the only one of the major sectors where output is above its pre-pandemic levels.
The service sector, which grew by +0.9% in May, was a mixed picture with strong growth in consumer-facing industries (+3.2%) as the easing of restrictions that occurred part way through April were in place through the whole month along with some extra easements. As a result, the food & beverages services activities made the largest contribution to growth in May as restaurants and pubs could serve indoors. This part of the services sector was at its highest level since August 2020 when the “eat out to help out” scheme was in place.
On the other hand, a small fall in the weighted attendance at schools meant that education output fell. Also, following a sizeable downward revision for April in the health sector as a result of better data on the test and trace scheme (which led to the downward revision for GDP growth in April) there was then little change in this in May which took out another source of growth from previous months.
You can get more details from the ONS Statistical Bulletins for the monthly GDP and UK Trade which can be downloaded from their web-site at https://www.ons.gov.uk/releasecalendar (9 July) or you can request them from MTA.
European Industrial Output, May 2021: Data from Eurostat on industrial production showed a fall of -1.0% for the Euro-zone compared to April, with a reduction of -0.9% for the EU. Given that a year earlier was the low point of the Covid shutdowns, the increases compared to a year earlier of +20.5% for the Euro-zone and +21.2% for the EU are relatively meaningless.
Unlike the UK where the trends were heavily affected by the fall in automotive output, the European picture seems to be more widely spread across the sub-sectors with only output of durable consumer goods increasing compared to April. While not the worst affected sub-sector, the capital goods industry shared in this general downturn with output down by -1.6% in both the Euro-zone and the EU as a whole. Compared to a year earlier, capital goods output grew by +27.6% in the Euro-zone and by +29.6% for the EU.
Normally we use the 12-month trend for the individual countries but, as this has less meaning at the moment, the month-on-month trend gives a better indicator of the current situation. Among the 26 Member States that have published their figures for May, only 8 reported that total industrial output was higher than in April with 18 seeing a lower figure. The fastest month-on-month growth was in Lithuania (+7.7%) and Hungary (+3.4%) while the largest falls were in Romania (-8.5%), Greece (-4.7%) and Ireland (-4.6%).
Finally, a technical note about the data: Eurostat uses industrial production - the majority of this is manufacturing activity but it also includes the extraction and utilities industries. Their breakdown of capital goods is the same as for the UK data reported above but they do not provide an aggregate for manufacturing output.
The Eurostat News Release can be downloaded from their web-site at https://ec.europa.eu/eurostat/news/news-releases (14 July) or requested from MTA.
European Commission Summer Forecast Update, July 2021: The European Commission produces full economic forecasts for the EU, Euro-zone and 27 Member States twice per year (Spring and Autumn) with an interim update between each full forecast round. Their newly published update shows that the European economy is expected to rebound more quickly than previously predicted with GDP growth of +4.8% in 2021 for both the EU and the Euro-zone (it was +4.2% for the EU and +4.3% for the Euro-zone in the Spring forecast). There has also been a small upward adjustment in the forecast for 2022 which now stands at +4.5% for both areas (revised from the Spring forecast of +4.4%). Under the new forecasts, the level of GDP is expected to be back to its pre-crisis level in the 4th quarter of 2021 for both the EU and the Euro-zone, although not for all of the countries, including Italy and Spain will reach this benchmark by this point.
This upgrading has been triggered by various factors including stronger than expected growth in Q1-21, progress with vaccinations which has allowed European economies to be re-opened, upbeat consumer and business surveys and evidence of a revival of intra-EU tourism which will be boosted further by the new EU Digital COVID Certificate. Private consumption and investment are expected to be the main drivers of growth, with goods exports boosted by strong growth in the EU’s main trading partners, although service sector exports will be held back by the constraints in international tourism.
The risks around the forecast remain high but, overall, are judged to be balanced. New variants of Covid-19 and the response of households and firms to changes in restrictions are the key unknowns and there is also a risk that inflation may be higher than expected.
As this is an interim forecast, it only covers GDP and inflation, but these forecasts are available for all 27 Member States with a comparison with the forecasts from the full Spring edition in the statistical appendix to the report.
You can view the Commission’s Press Release at https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3481 or get the full forecast document from https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-forecasts/summer-2021-economic-forecast_en.