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Economy in Brief

U.K. CBI Orders Index Moves Sharply Lower
by Robert Brusca  April 25, 2022

The Confederation of British Industry (CBI) index for industry in April 2022 shows total orders in the U.K. industry falling back to a reading of 14 from 26 in March. It's a significant step back. It's also a step back that leaves the index in April much weaker than it has been for much of the year. The 12-month average for orders is a reading of 20; the six-month average has a reading of 22; and the three-month average has a reading of 20. So, the April reading is a reading that is significantly weaker than what industry has been showing over the last 12 months in general. However. April is not a weak reading. When April is ranked among all readings back to 1991, that CBI reading emerges as stronger only about 4% of the time. Despite the setback in April, the CBI reading for orders continues to show a strong advance.

Export orders in April show more weakness. There is a relatively sharp one-month step-back and a reading that is historically much less robust than the reading for total orders. In April export orders fell to a reading of -9 from a reading of plus 7 in March. March was a relative high point, however. Export orders average a reading of -6 over 12 months, -3 over six months as well as -3 over three months. The reading of -9 in April ranked on data back to 1991 stands in its 67th percentile, marking April as a top 33% reading which is not bad but certainly not as strong as the reading for total orders.

Stocks of finished goods are showing some improvement in April at a - 3 reading compared to -8 in March. The -3 reading compares favorably to the -12 average over 12 months. the -14 average over six months and the -8 average over three months. However, as a standing in the queue of data from 1991, April is still a bottom 4% reading for stocks of finished goods. Judging from this, it would appear that businesses continue to have problems getting output to respond to needs and are unable to build stocks back to normal levels.

Looking ahead, the CBI survey assesses expected output volume over the next three months to be weaker than had been expected in March. The reading for April falls sharply to 17 from 30 in the March reading; March is in line with February that had a reading of 31. Over three months and six months, expectation for output volume had an average of 26; those readings slipped from 29 over 12 months. The reading of plus 17 for April is weaker by the standards of the last 12 months. Although it's weak relative to those standards, it's still a moderately firm reading overall. Ranking the April level in the queue of data since 1991, the standing for April is in its 72nd percentile, which is a firm reading just outside of the top 25% of observations over that same period.

Average prices continue the show a great deal of pressure. The average price is expected over the next three months show some let up in price pressures with that index falling to 71 in April from 80 in March; that is also weaker relative to its level of 77 in February. Over 12 months the average for this reading has been 58; over six months the average has been 71; and over three months the average rose to 76. The current reading of 71 in April is at the six-month average and stronger than the 12-month average yet only slightly below the three-month average. However, when compared to the queue of data since 1991, the April reading has a top one-percentage point reading for expected prices. Inflation is high and it looks like it's expected to remain high over the period ahead.

Data on industrial production are not as topical as the CBI survey and are only up to date through February. In February, manufacturing production fell by 0.3% month-to-month. Over three months manufacturing production was up at a 5% pace, which was a step up from the 3.5% pace over six months; that compares which was like the 3.6% pace struck over 12 months. The year-over-year growth rate for industrial production has a 75-percentile standing among all year-over-year growth rates back to 1991; that's a firm standing for production.

These data show that industry has cooled from its stronger pace over the last 12 months or so. However, the pace of output in industry is still relatively robust. But the inability to build stocks suggests that, despite this relatively strong pace, global supply constraints are holding-back industry.

Looking ahead, outlook metrics are still relatively solid while firms answering the survey continue to be wary about the prospects for inflation. Challenges continue to haunt the outlook as the war in Ukraine is disrupting global commerce and because the virus still lingers in various stages globally as well. China continues to impose draconian measures on various localities to try to stamp out any remaining vestige of the virus. This is having a profound impact on its economy, on its stock market and is driving out some foreign investment. In addition to these factors, lingering global inflation which has elicited a response from central banks imposes new challenges and uncertainties. There are more signs that economic growth is becoming much more uneven than it had been just a few months ago. Monetary policy has a difficult job in this environment since a lot of the issues associated with prices have little to do with monetary or credit excesses. Many of the strains have to do with global supply disruptions either still stemming from firms reacting to the global pandemic and resetting their global operations in response, or as fallout from the Russia-Ukraine war and the strains that it is putting on industry, raw material prices and agricultural goods.

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