CBI Industrial Trends Survey, August 2022: The latest results from the CBI Industrial Trends Survey (ITS) show the first reduction in manufacturing output since the survey dated February 2021. This survey, although dated August, really covers July and the three month period from May to July.
The balance for the volume of output over the previous three months fell to -7 and as well as being negative it is below the long-run average for this question. There was a clue to this in the previous survey where the balance of +6 was only just above the average. Little change is expected over the next three months with the balance of -2 being recorded.
Despite this negative overall trend, output increased in 10 of the 17 sub-sectors in the latest three months. However, the negative trend was driven mainly by the food & drink, mechanical engineering and paper, printing & media sub-sectors.
There was also a negative balance for the question on order books – in this case it was the first time since the April 2021 survey that this has happened but it is also worth noting that, at -7, it is above the long-run average for this question (-13). Export order books also had a negative balance – in this case -12, matching the level in the previous survey – but, again, this is above the long-run average (-18).
Stocks of finished goods were broadly adequate in this survey, marking a small improvement compared to last month.
You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (23 August) or request it from MTA (we can also provide a summary of the results).
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Flash Purchasing Managers Index, August 2022: The flash manufacturing sector Purchasing Managers’ Index (PMI) for the UK fell sharply to 46.0 – this is the first negative reading for the overall PMI since May 2020 at the height of the pandemic. There was a sharp fall in the output element of the index and, at 42.4, this is the lowest level seen since the start of 2009 (excluding the pandemic period in Spring 2020); this was put down to reduced customer demand, delayed delivery of goods and labour shortages.
There was also a significant reduction in new orders with a number of firms commenting that increased uncertainty and high costs had impacted on market confidence. Order backlogs fell for the first time since February 2021. There is a spark of good news in that input costs pressures eased with lower prices for commodities such as metal.
The Euro-zone is in a different place at the moment with the overall PMI marginally lower at 49.7, having been 49.8 in July, so continuing a mildly negative trend. However, they saw the output element improve slightly, but is still below 50, thanks mainly to a less negative reading in Germany than in July. Output in the Euro-zone was especially weak in the basic materials categories and the automotive sector. New orders were also down and this drop in demand has seen a build-up in stocks of finished goods in the manufacturing sector.
In Germany, as mentioned earlier, there was an improvement in output, although it remains significantly below the crucial 50 level, which meant that the overall manufacturing PMI improved to 49.8. New orders for the sector were also still negative but, again, at a lesser pace than in July; this mainly came from export activity with manufacturers recording the steepest drop in orders from abroad for over two years.
In contrast, France saw output fall at a marginally faster rate than in July and the overall PMI slipped to 49.0 (49.5 last month) – this is the lowest reading since the pandemic and if we exclude that period, you have to go back to August 2016 for a lower manufacturing PMI for France. Orders were also down in August but, unlike Germany, there is no specific reference to whether this is export driven.
Elsewhere in the world, only Japan and the USA have flash PMI readings. In Japan, the manufacturing PMI fell to its lowest level for 19 months but remained in positive territory at 51.0. The output element slipped from its already negative July reading and fell at its fastest pace for 11 months and orders declined at the fastest pace since September 2020. Similarly, the USA had a positive manufacturing PMI reading, albeit one that was down on the previous month and the lowest for 25 months while the output element was slightly weaker and below 50 for the 2nd month in a row. In part, this was due to weak demand and the report notes that export orders fell “solidly” thanks to inflationary pressures in key overseas markets.
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.
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UK Trade in Goods, 2nd Quarter 2022: Rounding up the data release from the Office for National Statistics for the 2nd quarter which we reported on last week, we take a look at the data on trade in goods and, again, we will focus on the quarterly data, not least because it smooths out some of the volatility.
Compared to the 1st period of the year, exports of goods (excluding precious metals – a group that has been significantly distorting the UK trade figures recently and which includes non-monetary gold) grew by £10.7 billion to £96.7 billion, an increase of +12.4%. On the same basis, UK imports rose by £12.2 billion to £159.3 billion, although this is a smaller percentage increase of +8.3%.
In both flows, there was a larger increase in trade with the EU than for the rest of the world in both value and percentage terms, with the EU accounting for just over half of both exports and imports in the 2nd quarter – the share had been below 50% in the previous quarter.
Longer term comparisons are complicated by a change in the methodology for collecting data on trade with the EU; this happened in two stages with the change to export data coming at the start of 2021 and for imports in January this year. For the latter especially, the impact of this change on the trade data remains unclear, with the distortions of the Covid-pandemic only adding to the problems in the analysis.
Another distortion to the data is the re-export of gas, with imports in the form of LNG coming into UK terminals and then being sent by pipeline to Belgium and the Netherlands. The UK has a significant capability to import gas but has little storage capacity beyond that needed to regulate pipeline flows. As well as this flow, the other significant increase in UK exports to the EU in the 2nd quarter was in the broad category of machinery & transport equipment.
Outside the EU, the increase in exports in Q2-22 was led by material manufacture – mainly non-ferrous metals to Canada and India – and a rise in the machinery & transport equipment category; this was partly off-set by a fall in shipments of crude oil to China.
On the import side of the trade equation, for arrivals from the EU, the rise was led by the machinery & transport equipment category with imports of mechanical machinery from Germany, electrical machinery from the Netherlands and ships & aircraft from Italy leading the way. Outside of the EU, the increase was mainly in the import of fuels some of which was re-exported and which is also affected by the rising price of oil.
You can download the ONS statistical bulletin and datasets from their website at https://www.ons.gov.uk/releasecalendar (12 August) or request it from MTA.