The data released by the Office for National Statistics (ONS) this week showed the expected recovery in output in May, but there is an indication that all is not well in that the increase in total manufacturing output was +1.4% compared to April with that month having seen a fall of -4.1%. While the decline in April was blamed largely on the automotive shutdowns that were moved from the Summer in case of delays in the supply chain because of Brexit, it is clear that there was also an element of the end to stock-building in the data.
Using our preferred 3-month rolling trend, manufacturing output in the latest period (March, April and May 2019) was +0.1% higher than in the previous 3 months (December 2018, January and February 2019) and +0.6% above the level of a year earlier (March, April and May 2018). We will use these comparisons again as we go though the data so where we show two percentage changes, they will refer to these comparisons, with the short-term one always quoted first. While the data for total manufacturing does not look too bad, the capital goods industries have been uniquely negative with trends of -1.4% and -3.7% in the 3 months to May; all of the other sub-sectors of manufacturing have seen growth in both trends.
We see some of the drivers of this weakness in the individual industry data, although the figures are mixed with some mildly positive news. According to the ONS, output of the Automotive industry in the latest 3 months was down by -9.1% and -13.7%, largely reflecting the weakness in April. However, the data from SMMT shows that while both car and engine output increased in May compared to April, the level was still below both March 2019 and May 2018, with the decline in the volume of engines exported perhaps the most concerning element of the May figures.
The other negative industry was Machinery with trends of -2.2% and -7.4% in the 3 months to May. There is no obvious Brexit driver of the weakness in this industry as stock-building is unlikely to have been significant and no evidence of an increase in output in the 1st quarter, so it seems that we are seeing a continuation of the cyclical downturn that followed the boost to activity from Sterling’s depreciation after the referendum result. It remains to be seen if this can be repeated if there is another fall in the pound if and when Brexit eventually happens.
The positive news, albeit relatively modest compared to the negatives, comes from the Aerospace industry where output grew by +1.1% compared to the previous 3 month period, although the level is still -1.2% down on the same period a year earlier. Perhaps slightly surprisingly given its links to the other industries and some evidence of a pre-Brexit stock-building boost, output of the Metal Products industry grew by +0.7% and +0.8% respectively. This industry is characterised by having weak months interspersed among what might be more “normal” periods and the timing of these is crucial to the 3-month trends. This time, there are weak months in May 2018, December 2018 and April 2019 – there is, therefore, one in each of the 3-month periods in our current comparison, but next month, the December 2018 figure will drop out of the “previous 3 months”, but April 2019 is still in the “current 3 month” block, so we will probably see a fall in output for this industry.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (10 July) or request it from MTA; we also have an analysis of the key industries which is available to members - please contact Geoff Noon (email@example.com) if you would like these charts.