The latest results from the CBI Industrial Trends Survey (ITS) showed output volumes flat in the latest 3 months but there was a sharp improvement in the outlook for the next quarter although this has to be tempered by a continuing weakness in orders. Investment intentions for plant & machinery also moved up a little, although the industry breakdown of this means it is not all good news.
Before we take a detailed look at the latest results it is worth noting that although they are labelled as being for “July”, this is the month of publication and data collection took place from 25 June to 12 July; therefore, these results really refer to June, with the three-month blocks corresponding to the calendar quarters (Q2-24 up to “July” and Q3-24 for the future).
Output volumes for the respondents to the survey were broadly flat in the 3 months to “July” and just below the long-run average for this measure. While output increased in only 6 of the 17 sub-sectors, these included motor vehicles & transport equipment, chemicals, mechanical engineering and electrical goods – this list has a bias towards those of most interest to the manufacturing technology industry, so this is good news.
There is also a positive indicator looking forward with manufacturers anticipating that output volumes will grow over the next 3 months, with the balance at its highest since March 2022 (although it should be noted that this has not been a very good indicator of the actual outcome recently).
Total new orders fell at a modest pace in “July” and at a similar rate to that recorded in “April”. Domestic orders were the weak point with a marginal increase in export demand being registered. Total new orders are expected to be broadly stable in the coming 3 months. Given that 70% of respondents said that the level of order books was likely to restrict output over the coming 3 months (above the long-run average rate), all this adds up to the need for a large pinch of salt to be taken with the expectations of an increase in output that we noted above.
This is one of the longer quarterly surveys that includes the questions about investment intentions and capacity utilisation. There was a small improvement in the overall balance for investment intentions in plant & machinery which remains above the long-run average and is at its most positive since the April dated 2023 survey.
However, as is often the case, the devil is in the detail and the strongest intentions are in the consumer goods sub-sector, with investment goods industries having the weakest outlook, albeit one that has edged slightly less negative than in the two previous surveys. It is also worth noting that the large companies (of which there are very few in the survey) are the ones with the strongest investment intentions.
Compared to the “April” survey, while “improved efficiency” was unchanged as a driver of capital investment plans, there was a noticeable fall in “replacement” activity (to its lowest level since January 2022) and a corresponding increase in the requirement to invest to “expand capacity” (in this case to its highest since the July 2023 dated survey).
Among the factors reported to be restricting investment, both “uncertain demand” and “inadequate returns” continued their decline from the start of the year and while they are the most mentioned factors, both are below their respective long-run averages. In the opposite direction, there was a small increase in reports of a shortage of both “labour” and “internal finance” but no change in “cost of finance” which has been significantly lower in each of the last two surveys than it was at the start of the year.
Finally, the measure of the current rate of operations as a percentage of “full capacity” was broadly unchanged, although the alternative activity-based question which asks if firms are working below capacity which is weighted by respondent size fell sharply (implying an increase usage of capacity) and is back at the level we saw a year ago.
The CBI press release on these survey results is available on their website at https://www.cbi.org.uk/media-centre/ (25 July) or we can let you have a copy of the summary of the results and some charts around the investment intentions data.