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ECONOMIC NEWS

CBI Industrial Trends Survey, July 2021:  The latest results from the CBI Industrial Trends Survey (ITS) showed a positive picture of demand and activity in the manufacturing sector but with some clouds appearing to dampen enthusiasm.  Although dated “July”, the data collection period for this survey (24th June to 14th July) means that the references to the month are really about June and the 3-month periods coincide with the calendar quarters.

The survey had record levels of output growth in the 2nd quarter while total new orders expanded at their fastest rate since 1974 - the latter is driven mainly by the fastest ever domestic orders growth.  As we will see this is driving optimism and investment intentions but firms are also reporting that global supply chain disruptions and shortages of inputs are leading to rising input costs both for materials and transportation.  As a result, both average costs growth and average domestic prices in the 2nd quarter were at the highest level since April 1980.

However, digging into the detail of the survey, we start to see some strange data;  the report notes that output volumes over the 2nd quarter increased in 16 of the 17 sub-sectors in the CBI survey but they go on to note that this was led by the automotive & transport equipment group.  This contrasts sharply with the manufacturing output data that we reported last week which has seen automotive output fall in the 3 months to May as a result of the micro-chip shortage - this is referred to elsewhere in the report - and aerospace output struggling to show any signs of recovery.

Total new orders in the latest 3 months (Q2-21) grew quickly and while domestic business was particularly strong, export orders also increased for the first time in 2½ years.  Looking forward, the order growth is expected to continue, although at a reduced pace overall;  this reflects a slow-down in UK demand balanced against a faster rate of expansion for export orders.

The clouds to this positive picture come from reports of factors limiting output where shortages of materials/components, skilled labour or plant capacity were all at their highest since the mid-1970’s.  The middle of these factors comes despite manufacturing employment growth being reported to be at its fastest since October 1973, although this may, in part at least, reflect people returning from furlough being regarded by respondents as an increase in employment.

As this is one of the longer quarterly surveys, we also get information about investment intentions and capacity utilisation.  The outlook for capital expenditure over the coming 12 months (compared to the previous 12 months) for plant & machinery was at its highest since April 1988.  There is also encouragement from the constraints on investment with “uncertainty about demand” at its lowest level since April 2014 and the proportion citing “inadequate net return" falling back to the lowest level on record.  There was also a fall in those saying that a shortage of internal finance was a problem but, chiming with the constraints on output , reports of a shortage of labour holding back investment increased to its highest level since this time last year.

The indicator of capacity utilisation from the ITS improved and, at 82%, it was back above the long-run average for the first time since the pandemic started.

You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (22 July) or request it from MTA - we can also provide a summary of the results and some charts around the investment intentions data.

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Flash Purchasing Managers Index, July 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 and Japan’s on Monday.  Before we look at the numbers, it is important to understand how the PMI works - it is an index measuring change rather than levels.  The index is calculated using the proportions of the responses that were “up” or “same” for various factors when compared to the previous month.  So while we focus on 50 as the crucial divide between expansion and contraction, an index of 50 actually implies no change on the previous month;  if the levels behind that were at, for example, record high levels, then 50 is actually not necessarily a bad thing in terms of the level of activity.  We have no way of knowing how large those “up” (or indeed “down”) changes were, so there is no difference between a respondent whose business doubled and one that was only up by +5%.  For that reason, the PMI can only give a direction of the business trend with an indication of the spread of that trend.

The flash manufacturing PMI for the UK dropped to 60.4, its lowest level for 4 months (it is slightly below the April reading).  However, as we hopefully explained above, this only means that the rate of expansion has probably slowed a little - because we don’t know the size of the movements, only the direction, we can’t be too precise about any comment on levels.  The output element of the manufacturing PMI fell back in the face of shortages of materials/components but this was balanced to some extent by an improvement in orders while delivery times continue add to the PMI when the measure should really be pointing the other way.  The improvement in orders came from both the domestic and export markets, with the US and Asia most often noted for overseas demand, while some noted that Brexit issues had constrained business with the EU.

The flash PMI for the Euro-zone also eased down to 62.6 (it had been above 63 for the previous 3 months) but, as noted above, this still implies a rapid rate of expansion in manufacturing activity as the sector continues to recover from the pandemic.  The output element of the flash manufacturing PMI also eased down in July but remains above 60 implying continued growth but at a slightly slower pace than last month.

The report makes reference to output being constrained by shortages of inputs, most notably in Germany although it is worth noting that their manufacturing PMI increased in July to a 3-month high of 65.6.  This was driven by an acceleration in orders which led to an increase in order backlogs.  We also have to factor in the perverse positive impact of long supplier delivery times which are at record highs because of the problems with the supply of components and materials together with issues around global transportation.

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.

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USMTO and CTMR, April 2021:  The US Manufacturing Technology Orders (USMTO) programme tracks orders in the US market, based on the reports from participants.  Given the events of last year and that the market was falling even before the impact of Covid-19, it is not surprising that demand is up in 2021 but the growth of +50% for the first five months of the year (compared to the same period in 2020 - January to May) is impressive.

We don’t normally quote the value figures - as noted above it only shows the responses received - but the total of just over $2 billion for the year to date is something that has only been achieved three times before since the survey started in 1998.

The AMT Press Release also highlights labor (sic) shortages as holding back the market from even stronger growth.  Although manufacturing employment is still half a million below the pre-pandemic level, the number of open positions is double that of February 2020.

Once again, the full regional breakdown is not available for confidentiality reasons, but we do have figures for metal cutting machines which account for almost 97% of the total reported for the first 5 months of the year.  All six of the regions were ahead of the value for this period in 2020 and only the South-East (+7%) was in single digits;  the fastest growing regions were North-Central-East (+66%) and North-Central-West (+87%) - note that these latter two are also the largest regions.

The US Cutting Tool Market Report (CTMR) tracks orders for tooling on a similar basis.  In contrast to the machines situation, business in the first five months of 2021 is still -1.5% lower than in the same months of 2020.  There seems to be a variety of reasons for this and the direct May to May comparison does, of course, show strong growth;  however, the tooling market was still strong in the first three months of 2020 (unlike the machinery side of the industry) and the May 2021 figure is down on the previous two months of this year for what are described as “supply-chain issues” (it is not clear if that is for cutting tool suppliers or their customers) and it is also noted that the March figure was boosted by quarterly distributor re-stocking.  There is no regional breakdown of the CTMR report.

You can download the press releases for the two surveys from the AMT web-site at www.amtonline.org, with the CTMR release also published on the USCTI web-site at www.uscti.com;  alternatively, you can request either or both releases from MTA and we can make sure you get them when they are published each month.