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Economy in Brief

CBI Gauge in the UK Continues to Be Upbeat
by Robert Brusca  May 19, 2022

The Confederation of British Industry (CBI) industrial survey for May of 2022 shows a sharp increase in its orders component to 26 from 14 in April. This ties it with its March reading of 26. At this level orders have a queue standing on data back to 1991; a standing that is well into the top 1% of its historic queue of data. The sequential averages for total orders are consistently strong with a 12-month average of plus 20, a 6-month average of plus 22 and a 3-month average of plus 22. The May reading is above these averages and all of these statistics are quite strong.

Export orders in the survey post a very strong turnaround in May, rising to plus 19 from -9 in April. April had slid to -9 from plus 7. Even so the recovery to plus 19 is extremely strong. Comparing the net value for export orders to sequential averages, the averages have been improving from -3 over 12-months to zero over 6-months to plus 6 over 3-months. Still, the plus 19 value is exceptional. The main export order figure, in fact, has a 99.2 percentile standing (on data going back 31 years) putting the reading once again in the top 1% of all historic readings for exports. This is an impressive report especially given the challenges in the global economy right now.

The reading for stocks of finished goods falls to -15 in May from -3 and April. The April reading had been in recovery from March which had posted a -8. Even so, the May -15 reading is a deterioration from the March value. The sequential averages for the inventory rating are generally improving but not exactly technically showing improvements underway over all horizons. The 12-month average at minus 13 gets slightly weaker over 6-months at -14 then improves to -9 over 3-months. But May's reading of -15 is weaker than all those averages; it suggests that inventories have been drawn down and, judging from the increases in orders, it's production that hasn't been able to keep up with demand causing a reduction of inventories. We see that on lagging industrial production data (current through March only) the year-on-year gain in IP has only a 52-percentile standing, far below the standing for order and export order growth. Expectations for output volume are quite high in comparison with the ranking of actual output growth in the industrial sector. This is certainly consistent with the inflation story that we see, with inflation in the UK having moved to what is estimated to be a 40 year high in data reported just yesterday.

The forward-looking at survey for output volume over the next 3-months finds a May value of plus 23 up from April's plus 17 reading. However, the May reading is still below the March reading of plus 30. The sequential averages show consistently high readings, however, readings that show some slight erosion. The 12-month average is at plus 28, the 6-month average is at plus 25, and the 3-month average is at plus 23. The May value has at the same reading as the 3-month average and that is part of a declining profile from 12-months to 6-months to 3-months. Still the queue standing for May expected output volume has it 87,3 percentile standing - a top fifteen-percentile value on data back to 1991. That marks these expectations as still strong.

Average prices expected over the next 3-months moved up to a plus 75 reading from plus 71 in April. The May rating at 75 is below the March reading (which is a 31-year high) at 80. The sequential averages show increasing inflation pressures as the 12-month average for this survey is at 61, the 6-month average moves up to 72, and the 3-month average moves up to 75 which is equal to the reading in May. So not only did the UK CPI indicate a 40-year high inflation rate, the industrial survey shows that inflation pressures in the industrial sector seem to be still-building. The average price metric in May has a 99.2 percentile value on data back to 1991, once again, an extremely strong reading.

The global economy has a lot of challenges. There are supply chain issues and it's hard to tell if they are being solved at all by looking at this report. We see that orders are still strong, export orders are still strong, and there are expectations for output volume to continue to ramp up and industrial output is not in the same league in terms of its standing. There are also inflation problems which suggests that supply hasn't been meeting demand and the prices are moving up to help bridge the gap between what people want and what can be delivered. The Bank of England is still engaged in a restrictive policy response; we expect the ECB to join the Bank of England and the Federal Reserve shortly. The war in Ukraine continues to spread uncertainty and to disturb existing supply chains as well as to eliminate the source of supply for some key materials and foods. It appears that part of Russia's strategy in the Ukraine is to disrupt the global supply chain for food and to use food as a global weapon against the world in retaliation for the sanctions that have been imposed on Russia. The 'collateral damage' we see from this war is not unintended or 'collateral' it is part of a global strategy to make the pain from this war globalized and not allow it to be localized. Make no mistake about it, Russia is making war on YOU. If you do not back Russia's claim on Ukraine YOU are the enemy, whoever you are, wherever you are.

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