UK Quarterly National Accounts and Investment, 2nd Quarter 2021: This week saw the publication of the quarterly National Accounts for the 2nd quarter but more importantly, it is also the point in the year when the Office for National Statistics (ONS) rebases its economic data - in this case from 2018 prices to 2019 as the base year. This complicates the analysis of the situation because, especially in the detailed figures, it often gives rise to some significant revisions to the data series.
On this occasion we even see this in the GDP figures on both a short-term and historical basis. For those who are interested, the main change is the introduction of double-deflation into the analysis of the volume indicators (constant prices), but we will pass over the technical details in this note.
In short, the ONS now estimates that the UK economy grew by +5.5% compared to the previous quarter, a significant upward revision from the previous estimate of +4.8%. This means that the comparison to the pre-pandemic levels have also been revised and at the half-way point of 2021, the UK economy is estimated to be -3.3% lower than before the current crisis (the level in Q4-2020) - this has been revised from -4.4%. The main driver of the growth in the 2nd quarter of the year was household consumption as a result of the easing restrictions compared to those in place during the 1st period of the year.
All three of the major sectors of the economy grew in the 2nd quarter with the +6.4% recorded for the service sector by far the strongest. The manufacturing sector is now estimated to have grown by +1.8% (up from +1.7% in the previous estimate) and is at its highest level since the start of the pandemic but is still -2.0% below the level of the 4th quarter of 2019. The construction sector also grew in the 2nd quarter - in this case by +3.9% - and it is worth noting that it was the only one of the three sectors to have grown in the 1st period of the year as well.
These revisions from the ONS go right back to 1990 for most economic data series (and to 1955 for GDP) and while it is not really in the scope of this article, it is worth noting that the trend for 2020 has been adjusted to a decline of -9.7% compared to the previous estimate of -9.8%.
However, the most interesting and useful part of the National Accounts data release is the detailed breakdown of investment by industry. This is even more so this time as the re-basing and revisions have largely resolved some very puzzling (to the extent of being unbelievable) data from 2019, especially for the engineering & vehicles industry. The revisions have strengthened the picture for the 2nd quarter with total business investment now estimated to have been +4.5% (was +2.4%) higher than in the previous quarter and +12.9% (from +9.7%) above the level of a year ago.
The new data shows that investment by the total manufacturing sector was +7.7% higher than in the 1st period of 2021 and +20.0% up on a year earlier (Q2-20); however, the rolling 4-quarter trend shows a fall of -0.5% which largely reflects that the end of 2019 was at a higher level than the first part of this year and shows that there is still some ground to be made up to get back to pre-pandemic levels. Overall, manufacturing investment accounts for about 17% of total business investment - this is a higher share than manufacturing output in the whole economy (around 9%), emphasizing the relative importance of the manufacturing sector in an investment led recovery.
The sub-set of manufacturing covering the engineering & vehicles industries (which includes a large proportion of our customers) was a little behind manufacturing as a whole with quarter-on-quarter growth of +4.9% in the latest period which took the total to +15.5% above the level of a year ago. However, this sub-sector did better than manufacturing as a whole in the 1st period of the year, so this is probably just some natural “noise” in the data. The engineering & vehicles sub-sector accounted for 47% of total manufacturing investment in the 2nd quarter of 2021.
You can download the ONS Statistical Bulletin for the National Accounts from their web-site at https://www.ons.gov.uk/releasecalendar (30 September) or you can request it from MTA - similarly, you can also get the new business investment data from the ONS web-site (also 30 September).but our analysis of this data is available if you contact Geoff Noon at MTA (email: email@example.com)
European Commission Economic Sentiment Indicator and Capacity Utilisation, September 2021: The European Commission (EC) draws from a range of surveys to construct confidence indicators for six sectors of the economy and then uses five of these to compile its Economic Sentiment Indicator (ESI). Because of the data collection periods, the month is that in which the data is published, although it really refers to the previous month so these results really apply to August despite the title.
The report for September shows that the ESI for the EU was unchanged from the August level, with a small but not significant increase for the Euro-zone. This arose from a mix of trends among the sectors with an improvement in confidence for construction and among consumers which was off-set by a weakening of sentiment in services and the retail trade;
most importantly for MTA/EIA members, however, is that industry confidence was unchanged at its 2nd highest ever level. Confidence in the financial services industry, which is not part of the ESI calculation, fell in this report.
The industry confidence indicator is itself a composite of the responses to three questions and on this occasion, these have moved in opposite directions. Expectations for production over the coming three months (from August effectively) were lower but assessments of total order books rebounded following a dip from a record level last month while stocks of finished products were unchanged at the high level seen the previous report. Although not part of the calculation, export order books were broadly stable but there was another fall in output over the previous 3 months (probably reflecting the supply chain issues).
Looking at the major economies in the EU, there was a significant increase in the ESI for Spain with more modest rises recorded in Germany, Netherlands and Poland. In the opposite direction both France and, to a slightly lesser extent, Italy saw a fall in the indicator.
You can download the Commission’s report and the data appendix from their web-site at https://ec.europa.eu/info/business-economy-euro/indicators-statistics/ec... or it can be requested from MTA.