CBI Industrial Trends Survey, April 2022: The results from the latest CBI Industrial Trends Survey (ITS) concluded that there has been a slowing in the rate of growth of output over the past 3 months but it remains above the long-run average level. Output grew in 12 of the 17 industries in the ITS with the largest positive contribution coming from the transport equipment group that includes the automotive industry.
The respondents to the survey expected output to grow at a similar pace in the next 3 months although the percentage of firms saying that orders/sales was a factor likely to limit output in the 2nd quarter (data collection took place between 24th March and 12th April) increased for the first time since July 2020 but, again, this is still well below its long-term average.
There is a similar trend for new orders which also grew at a slower pace in the latest 3 months compared to the January survey, although this is also well above the long-run average. The growth came mainly from domestic orders, with export demand broadly flat and not far from its long-run trend level.
Capacity utilisation, measured by an assessment of operations as a percentage of full capacity was broadly at the same level in each of the three previous quarters. However, the percentage of firms reporting that they are operating “below capacity” fell to 45% which is its lowest level since July 2018.
As this is one of the quarterly surveys, we also get the new reading on investment intentions which shows plans for spending on plant & machinery over the coming 12 months fell back from the high level in the previous survey but, like many of the other indictors in the survey, this is still well above the long-run average. It may, therefore, simply represent an easing of the recovery bounce that we have seen in the four previous surveys. Investment intentions weakened in the three sub-sectors of most interest to us and, more importantly, were below the long-run average for transport equipment but still above it for mechanical engineering (machinery) and metal products.
Among the reasons given for authorizing capital expenditure, “replacement” bounced back to its long-run average, “increase efficiency” dipped just below that level and “expand capacity” also fell but remained above the long-term trend. Among the factors that are restricting investment, “uncertain demand” remains the most reported at an unchanged rate but is below the long-run average; the next most reported constraint is “shortage of labour” which has been running at elevated levels in the three previous surveys and remains high despite a marginal reduction compared to January. Both “inadequate return” and “internal fiancé shortage” were at similar levels to the previous survey, with the latter running right on its long-run trend level.
You can get the Press Release of the CBI ITS from their web-site at www.cbi.org.uk/media-centre (25 April) or request it from MTA – we can also provide a summary of the results and some charts around the investment intentions data.
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Flash Purchasing Managers Index, April 2022: The flash reading of the Purchasing Managers Index (PMI) for manufacturing was published at the end of last week, just too late for our publication schedule. For manufacturing, this is calculated as a weighted index using separate series for new orders, output, employment, suppliers delivery time (longer is considered good as a sign of increased activity) and stocks of purchases.
For the UK, the overall manufacturing PMI is estimated to have ticked up to 55.3 (55.2 in March) but there was a more substantial increase in the output element which moved from 51.8 in March to 53.8 in April. The improvement in output was balanced by a further easing of delays to suppliers deliveries (despite bottlenecks related to the war in Ukraine, ongoing port congestion and lockdowns in China) and by a fall in orders, especially from overseas where manufacturers saw the largest decline in export new orders since June 2020, mainly linked to European customers.
In the Euro-zone as a whole, the manufacturing PMI fell to a 15-month low of 55.3 with the output element at a 22-month low of 50.4. The automotive sector was a large part of this as it saw a steepening of the loss of output, although most of the other manufacturing industries also reported a worse position than in March. In contrast to the UK, supply constraints were behind this with a lengthening of suppliers delivery time delays mainly arising from the Ukraine war and lockdowns in China. The (incorrect) positive effect on the PMI from longer delivery times was more than outweighed by the fall in output and by growth in new orders being at its slowest pace since June 2020.
At this stage, we only have the detailed figures for Germany and France, although these do reveal some interesting contrasts despite underlying similarities. The German trends largely mirror those of the Euro-zone as a whole with the overall manufacturing PMI at a 20-month low of 54.1 and the output element in negative territory at 47.4 (a 22-month low). As well as output, new orders also fell for German manufacturers amid heightened uncertainty, economic sanctions and squeezed supply chains. In contrast, France saw a rebound in its manufacturing PMI to 55.4 and the output element edged upwards to 51.2; in part this is a timing issue with March having been a weak month in France as they are still reporting constraints from supply chain disruptions but they recorded an increase in new orders, although this was concentrated on domestic customers with export orders falling for the 2nd month in a row.
Elsewhere, only Japan and the USA have flash estimates for the manufacturing PMI and, again, there is a contrast in the trends. For Japan both the overall manufacturing reading (53.4) and the output element (51.7) were lower than in March, with orders also positive but at a slower pace of growth. However, the USA saw the overall PMI at a 7-month high (59.7) and output at a 9-month high of 57.4 and new orders (including for export) also grew at a faster pace despite another marked extension to suppliers delivery times.
These reports are available on the S&P Global web-site at https://www.markiteconomics.com/Public/Release/PressReleases?language=en or on request from MTA.
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UK Automotive Production, 1st Quarter 2022: Data published by the Society of Motor Manufacturers and Traders (SMMT) shows that the UK produced 207,347 cars in the 1st quarter of the year. This is an increase of +2% on the 4th period of 2021, although this is mainly because there is no seasonal adjustment and the comparison period includes the short-working month of December. It is nearly one-third down on the 1st quarter of 2021 which was mainly before the supply chain issues around the supply of semi-conductors emerged.
Indeed, this is the theme picked up by the SMMT in their announcement in which they point out that output has fallen by 100,000 since the same period in 2021 in the face of shortages of semi-conductors and other components. This fall was exclusively in the export of vehicles – the number of cars built for the UK market actually increased slightly – with shipments to the USA seeing the largest reduction in March, although this is mainly due to the closure of the Honda factory which supplied that market. The EU remains the main export market for UK built cars.
The other part of the UK manufacturing base is the production of engines and we see a similar effect here with a small quarter-on-quarter increase in production (+3%) but a decline of -23% compared to a year earlier with 124,000 less engines produced. This combination of trends emphasises the point that the UK makes more engines than it does cars, so the automotive industry and its demand for manufacturing technology is more exposed to the trend towards electric vehicles than the headline vehicle production numbers might suggest.
You can get the full details of the SMMT announcements by accessing the news stories on their website at https://www.smmt.co.uk/category/news/manufacturing/.
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USMTO and CTMR, February 2022: The US Manufacturing Technology Orders (USMTO) programme tracks orders in the US market, based on the reports from participants. The February figures continued the strong start to 2022 and the total for the first two months of the year is the highest for this period since the all-time record start to 1998. Overall, total machine tool orders are +30% higher than for Jan/Feb 2021 and the rolling 12-month figure is over $6.1 billion – the previous peak was $5.5 billion in January 2019.
The regional analysis of the results shows an increase across the country, although we don’t have all of the figures for the total; we can, however, use the metal cutting machines figures which make up the vast majority of the data in the survey. This shows growth ranging from +13% in the North-Central-East (note that in this region, metal forming machines business fell sharply, so the total growth for the first two months of the year was only +4%), through to growth of +83% in the South-Central region.
The US Cutting Tool Market Report (CTMR) tracks orders for tooling on a similar basis; the first two months of 2022 have seen business +11% higher than in the same months in 2021 and the rolling 12-month total has edged above $2 billion for the first time since July 2020. However, the recovery here still has a long way to run before we get back to the level of the previous peak in the cycle of around $2½ billion that we last saw in 2019. The press release announcing this data suggests that it is the problems in the automotive and aerospace industries that are holding back sales.
You can download the press releases for the two surveys from the AMT web-site at www.amtonline.org/topic/intelligence, with the CTMR release also published on the USCTI web-site at www.uscti.com; alternatively, you can request either or both releases from MTA and we can make sure you get them when they are published each month.
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UK Profitability, 4th Quarter 2021: Data from the Office for National Statistics (ONS) shows that the net rate of return for manufacturing companies fell to 8.7% at the end of 2021; this is down from a revised figure of 9.5% for the 3rd quarter and is lower than the 9.8% rate of return recorded in the final period of 2020. It is also below the long-run average (back to 2000) of 10.9%.
For 2021 as a whole, the average rate of return for UK manufacturing companies was 9.5% and the good news here is that this is an improvement on the 9.1% registered for the whole of 2020. Of course, the bad news is that the latest figures represent what may turn out to be the end of the post-pandemic recovery.
The rate of return is defined as the net operating surplus (gross capital surplus less capital consumption at current replacement cost) divided by net capital employed (gross capital employed less accumulated capital consumption at current replacement cost).
The ONS only publish tables for this data-set and there is no commentary; you can download this from their website at https://www.ons.gov.uk/releasecalendar (28 April) or request them from MTA.