This post will be the first of what I hope will become a regular series that looks at the latest economic data. It will attempt to interpret the various indicators and put them into some perspective so that you can read the tea leaves about how to plan and implement your business strategy.
Today, we’re looking at the recent surveys of a number of respected commentators on the UK economy: The Office for National Statistics, BDO, the CBI and Markit/CIPS.
The underlying picture is, unfortunately, one of continuing weakness in the economy, with growth very hard to come by. The Chancellor’s autumn statement underlined this with further promises of infrastructure spending over the coming months and years.
The ONS figures suggest that Manufacturers have been badly hit in this last quarter and the Markit report suggests that the construction sector has suffered particularly badly hit in the last couple of months. All in all, this is not a positive picture as we come to the end of 2012, with further government cuts and likely personal tax increases to come.
1. ONS Index of Production October 2012: Manufacturing output fell by 2.1 per cent in October 2012, compared with October 2011.
Comment: This recently published data shows that Manufacturers’ output fell in October at the steepest rate since June! It is argued by many commentators that this 2.1pc drop over the past year may be enough to tip us back into negative growth for this quarter, with the potential to tip us into a triple-dip recession at the end of the next quarter.
2. BDO Optimism index for November: Confidence is edging up but continues to indicate weak growth ahead
•Business confidence levels slowly rose in October, as the BDO Optimism Index climbed to 93.2 from 92.5 in September.
•This is broadly in line with the level seen in July and follows a slump in confidence in August.
•Despite the increase this month, confidence levels remain well below the important 95.0 level that points to positive growth in the UK economy six months down the line.
BDO OPTIMISM INDEX 100 = average trend growth. Greater than 95 = positive growth
Comment: Whilst this survey shows an increase in confidence over the last month, it is still below the 95.0 figure that suggests positive growth. Unsurprisingly, given the previous set of data, confidence among manufacturers dipped to 89.2 from 90.2 in September! Key factors affecting business confidence include relatively weak global economic growth, as the IMF downgraded their forecasts for world growth in 2013, and continuing uncertainty in the Eurozone.
This Index continues to indicate that weak growth conditions are likely to continue well into 2013, compounding the effects of government austerity measures.
UK manufacturers expect to reduce output over the next three months, while overall orders are relatively flat, the CBI said. “Business confidence continues to be undermined by uncertainty over events in Europe and the fast approaching US fiscal cliff,” says the CBI’s Anna Leach. “However, we expect UK growth to pick-up somewhat in 2013.”
Comment: Of the 409 manufacturers responding to the latest monthly Industrial Trends Survey, only 19% expect to increase their volume of output over the course of the next three months, while 28% expect it to fall. The resulting balance of -9% marks the lowest prediction this year and is below the long-run average (+6%). The anticipated fall is broad-based, with only motor vehicles and the transport equipment sub-sector expecting to increase output.
4. Three surveys from Markit/CIPS, for construction, manufacturing and services
Markit/CIPS UK Construction PMI®:Confidence in business outlook lowest for almost four years amid sharpest new orders decline since April 2009
- Construction output returns to contraction…
- …as new business levels fall for sixth month in a row
- Employment drops at fastest pace since December 2010
Comment: There was a significant deterioration in the UK construction sector in November. Output fell for the third time in the past four months amid the steepest new orders decline for just over three-and-a half years. A lack of new business to replace completed contracts in turn contributed to a marked drop in confidence regarding the outlook for the next 12 months. Latest data pointed to the weakest degree of positive sentiment since the near-record low seen in December 2008.
As a result, jobs were cut again in November and at the fastest pace for almost two years. Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) posted 49.3 in November, down from 50.9 in the previous month and its lowest level since August.
Markit/CIPS UK Manufacturing PMI®: UK manufacturing downturn eases in November
- UK Manufacturing PMI rises to 49.1 in November
- Output posts modest increase, but heavily supported by backlog depletion
- Manufacturers maintain cost-cautious approach to hiring, purchasing and stock holdings
Comment: Following the poor October reported by the ONS above, this survey shows conditions in the UK manufacturing sector edging closer to stabilisation in November. Levels of new work held broadly steady and production posted a modest increase. However, trends in output were uneven across the sector, with contractions at capital and intermediate goods producers offsetting strong growth in the consumer goods sector.
At 49.1 in November (up from October’s three-month low of 47), the seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) remained below the neutral 50.0 mark for the seventh straight month. The average reading so far in Q4 2012 (48.2) is slightly above that recorded for Q3 (47.8).
Markit/CIPS UK Services PMI®: Slight fall in new business weighs on service sector activity in November
- Business activity rises at slowest rate for 23 months
- New business volumes down for first time since December 2010
- Lowest level of service sector confidence for 11 months
Comment: There was a slight drop in business activity in the Service sector during November as incoming new work fell slightly for the first time in nearly two years. A tough economic climate was commonly reported to have undermined efforts to secure new business. This also weighed on service sector confidence, with sentiment falling in November to the lowest of 2012 so far.
After accounting for seasonal factors, the Business Activity Index recorded 50.2, compared to 50.6 in October. Although the index has posted above the 50.0 no change mark for 23 months in a row, the latest reading was indicative of only a slight increase in activity.
Summary
This data all points to an increasingly uncertain economic backdrop for UK business, with very few positives to report. I think we have a number of years to go before we might start to see improvements. It may just be that the economic shocks we suffered in 2008 were so great that in years to come this period of the UK economy is seen as a period of consolidation before we enter what is hopefully another age of successful growth.
Image by: Images_of_Money