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ECONOMIC NEWS

UK Manufacturing Output, July 2021:  As we will see in the next item, data from the Office for National Statistics (ONS) highlights the difference between production and manufacturing which may not be obvious in the headlines.  Therefore, while total production grew by +1.2% in July (compared to June), manufacturing output was unchanged;  this was because the growth in production was entirely driven by an increase in oil production as an oilfield came back on-line after maintenance.  This sort of event can not be covered by seasonal adjustment techniques because they don’t conform to a regular pattern - however, we will see in a moment an example where this may have happened.

We prefer to look at rolling 3-month trends and because the shut-down was only in June, we don’t see the same effect in that data;  in the 3 months to July (May, June and July 2021), manufacturing output increased by +1.0% compared to the previous 3 months (February, March and April 2021) and by +15.3% compared to a year ago (May, June and July 2020) - the equivalent figures for total production are +0.5% and +10.5%.

The first level of detail in the data is the sub-sectors (groups of industries) and it is capital goods that is of most interest to us here.  Because of a weak figure in May, output of this group fell by -3.1% compared to the previous 3 months but was +20.2% higher than a year ago.  The level of output in July was 91% of the figure for February 2020 (taken to be the pre-pandemic month) - this is the only one of the main sub-sectors to be below the pre-pandemic level, although consumer durables only makes the 100% mark thanks to rounding (it is 99.9%).

The reason for this fall is the automotive industry where output fell by -19.2% compared to the previous 3 months but is up by +39.7% over a year ago.  The longer term comparison highlights the extreme fall in this industry as the pandemic struck and while April 2020 (when output all but stopped) has dropped out of the comparison, May 2020 was not much better and is still part of this trend.  The short-term decline is because of the problems with the supply of components (mainly electronics);  from the monthly data, this appears to be easing from a low point in May, although this is a case where the normal seasonal patterns of summer maintenance shutdowns in July have been disrupted and the seasonal adjustment is boosting the real figures for the latest month.

This is borne out by the data from SMMT on the numbers of cars and engines produced - the ONS data is based on values.  Production of both vehicles and engines fell in July (compared to June) with SMMT explaining that this was due to a combination of “global chip shortages, ‘pingdemic’ and summer shutdown timings”.

The other weak area of manufacturing and the capital goods industries is aerospace where output in the latest 3 months was -0.2% lower than in the previous 3 months and only +8.9% higher than a year earlier.  This industry had a small recovery last Autumn after the initial shock but output slipped back in November 2020 and has remained stubbornly low ever since.

There is, however, some good news with output of the wide ranging machinery industry up by +3.3% comparing the latest 3 months with the previous period and growth of +32.9% compared to a year ago.  However, it is worth noting that the short-term growth here is from a good May and June and output fell back in July to its lowest level since February - we need to keep an eye on this in case it marks a turning point for this industry.

Finally among our key industries, the metal products industry is showing similar improvement with growth of +3.2% and +19.8% respectively.  Here there was a spike in June but the July figure fell back to be the same as May, so this looks like a correction of a good month rather than a possible turning point.

You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (10 September) or request it from MTA;  we also have an analysis of the key industries which is available to members - please contact Geoff Noon (gnoon@mta.org.uk) if you would like these charts.

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UK GDP, July 2021:  As usual, the data on output comes alongside the monthly GDP estimates for the UK economy;  the ONS estimates month-on-month growth of only +0.1% for July which leaves it still -2.1% below the pre-pandemic level (February 2020).  Production output was the main contributor to growth in the month but, as noted above, this was mainly due to an oilfield coming back on-lie after maintenance.

Over the past 3 months, UK GDP has grown by +3.6% thanks mainly (and inevitably given its size within the economy) to the service sector which has benefitted from the re-opening of the hospitality industries and an increase in school attendance.  The service sector picture for July is a story of winners and losers with output in information & communication, financial & insurance activities and arts, entertainment & recreation growing while professional, scientific & technical services and human health & social work activities falling back.

The other major sector of the economy is construction, although it is smaller than manufacturing so large movements don’t have that much effect on the overall GDP data.  This sector saw output fall for a 4th consecutive month in July and having got above its pre-pandemic level in February and March 2021, is now -1.8% lower than it was in February 2020.  This decline was seen in both new work and repairs and particularly in both types of work on private housing – anecdotal evidence from the ONS survey points to rising prices caused by problems in sourcing construction products (notably steel, concrete, timber and glass) being the main reason for the decline.

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 (10 September) or you can request it from MTA.

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European GDP, 2nd Quarter 2021:  Eurostat now has more data for the 2nd quarter of 2021 and has upgraded its estimates for GDP with growth of +2.2% (was +2.0%) compared to the 1st quarter for the Euro-zone and +2.1% (from +1.9%) for the EU as a whole.  By way of comparison, quarter-on-quarter growth in the UK was +4.8% and the USA had growth of +1.6%.

Highlighting the Coronavirus induced fall in economic activity, these estimates mean that Euro-zone GDP was +14.3% higher than a year ago while GDP for the whole of the EU was +13.8% higher.  Neither the Euro-zone nor the EU has yet got back to its pre-pandemic peak level of GDP which was in the 4th quarter of 2019;  however, the USA has now achieved this landmark of the Covid recovery - note that the UK is not yet in this position.

Looking at the individual countries and of the 26 EU Member States to have published their figures (Luxembourg is missing), only Croatia and Malta recorded a reduction in GDP compared to the previous quarter;  the strongest growth was in Ireland (+6.3%) and Portugal (+4.9%).  Among the major economies, Germany had growth of +1.6% but this was not enough to reverse the -2.0% fall in the previous quarter;  Spain had a much smaller reduction in GDP in Q1-21 (-0.4%) which meant that its growth of +2.8% for the 2nd period of the year did reverse that set-back.  The profile for France and Italy was rather different as they had seen GDP decline in Q4-20 with changes of zero and +0.2% respectively in Q1-21;  however, while Italy more than reversed the decline with growth of +2.7% in the latest quarter, growth of only +1.1% in France means that they are not quite back to the previous level of GDP.

Finally, it is worth noting that while both the Euro-zone and the EU as a whole had a period of recession (non-positive growth) across Q4-20 and Q1-21, among the individual Member States, only Austria had two negative quarters - however, Netherlands and Spain both had zero growth in Q4-20 and France recorded the same trend in Q1-21, with a negative in the other quarter in these 3 countries.

There are more details in the Eurostat euro-indicators publication which can be downloaded from their web-site at https://ec.europa.eu/eurostat/news/euro-indicators (07 September) or requested from MTA.