CBI Industrial Trends Survey, January 2024: The CBI published the results of its Industrial Trends Survey (ITS) for January*; this showed a fall in output volumes over the previous 3 months with little expectation for much of a recovery in the coming period. Total new orders fell at their fastest pace since July 2020 reflecting declines in both domestic and export business.
The percentage of firms citing orders or sales as a factor likely to limit output over the next quarter was at its highest for 3 years and growth in average costs accelerated in the 3 months to January*.
Output volumes fell in the three months to January* after being unchanged in the equivalent period to December*. Output fell in 13 of the 17 sub-sectors in the survey, driven by weakness in the chemicals, transport equipment (including automotive), metal products and building materials groups. Although output volumes are expected to rise over the coming quarter, it should be noted that this question has been a poor predictor of the outcome which is subsequently reported.
This is one of the longer quarterly surveys that includes the questions about investment intentions and capacity utilisation. Although respondents said that they planned to increase expenditure on training/retraining the more important (for MTA members) measure of spending on plant & machinery fell to its weakest level since January 2021. Although it is below its long-run average, it is some way from the recession type levels that we saw during the global financial crisis (2008-09) or the Covid pandemic (2020) – it is even just above the levels of the weak period during 2019.
Among the key industries, the weakest block is the transport equipment group (unfortunately the CBI analysis does not differentiate between the automotive and aerospace industries) and the mechanical engineering industry has also seen a modest downturn in sentiment.
Among the drivers of investment, there was an increase in the percentage of respondents indicating that this was to improve “efficiency”; “replacement” demand remains around its long-run average while spending to “expand capacity” is relatively low. Among the constraints to investment, “uncertain demand” and “inadequate return” both increased to be above their long-run average and are at their highest since January 2021 and July 2020 respectively. The other notable change was the increase in reports of “cost of finance” as a constraint;’ although some way behind the other two indicators this was at its highest since the spike in July 2020.
Finally, the measure of the current rate of operations as a percentage of “full capacity” fell again and matched the level we last saw in October 2020 during the recovery from the pandemic.
* Note that January is the month of publication; with data collection taking place from 18 December to 12 January, these results really refer to December, with the three-month blocks corresponding to the calendar quarters (Q4-23 up to “January” and Q1-24 for the future).
The CBI don’t appear to have published a press release on these survey results but you can check their website at https://www.cbi.org.uk/media-centre/ to see if it is reported or we can let you have a copy of the summary of the results and some charts around the investment intentions data.
Flash Purchasing Managers Index, January 2024: The flash manufacturing sector Purchasing Managers’ Index (PMI) published this week showed an improvement on the December reading, although often still below the crucial 50 level.
The UK number “improved” to 47.3, its highest level since last April but much of this came from the perverse effect of an increase in suppliers’ delivery times due to the crisis in the Red Sea and longer delivery routes being used by shippers – this also drove up freight costs. The output element of the index (which is a weighted composite of 5 factors) fell to a 3-month low thanks mainly to weak orders and overstocked customers.
There was also a less negative reading for the Euro-zone PMI which at 46.6 was at its highest (or perhaps more accurately least negative) for 10 months but in this case, the output element of the calculation also improved and, along with new orders, fell at its slowest rate for 9 months. Manufacturing backlogs fell sharply and there was the 8th consecutive monthly reduction in employment. As in the UK, the overall index was helped by an increase in suppliers’ delivery times for the first time since last January.
The only Euro-zone countries with a flash PMI for manufacturing are Germany and France with a divergent picture underlying an 11-month and 4-month high for the overall index respectively. The “improvement” in Germany was accompanied by the least weak output element for 8 months but there was a further fall in this measure in France.
In Asia, we now have a flash indication of the manufacturing PMI for India to go alongside the figures for Japan. This is especially useful at the moment as the former has the most positive reading globally. The Indian reading was at its highest since September thanks mainly to a strong increase in output while the overall index edged up in Japan thanks to less weak output but, in this case, it remains below the crucial 50 level.
This leaves the USA where the flash manufacturing PMI reached 50.3, its highest since October 2022 despite only a modest improvement in the output element. Like the UK, there was an increase in suppliers’ delivery times, although for the US, this appears to be mainly related to storms and transport delays rather than the issues in the Red Sea which meant that the lead times extended for the first time in a year and to the greatest extent since October 2022.
These reports are available on the “PMI by S&P Global” website at https://www.pmi.spglobal.com/Public/Release/PressReleases or on request from MTA.