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Economy in Brief

U.K. Shows Scatter-Shot IP Trends
by Robert Brusca  May 12, 2022

Industrial output in the United Kingdom is mixed and convoluted. The monthly trends show a mix of erratic gains and losses across sectors. Manufacturing output fell 0.3% in March, a little less than the 0.5% decline logged in February and compared to a 0.9% increase in January.

The consumer sector is inconsistent. Durable goods output rises by 2.1% in March after falling 2.8% in February and rising by 5% in January. Consumer nondurables show output falling 2.2% in March after rising 2.2% in February and falling by 6% in January.

Intermediate goods output rose by 0.3% in March, fell by 0.8% in February and rose by 6.2% in January. Capital goods output rose by 1.1% in March, fell by 2.8% in February and rose by 1.1% in January.

These sectors mark a lot of ups and downs and choppiness with reversals reported constantly from one month to the next in each sector. Not surprisingly when we turn to the sequential growth rates, we find very different things going on in the various manufacturing sectors.

First, headline output shows no clear trend rising 1.8% over 12 months, accelerating at a 3.3% pace over six months then deflating and logging a 0.4% rate of expansion over three months. There is growth, but it is quite inconsistent.

Consumer durable goods show steady and strong expansion, coming close to showing ongoing acceleration. Output rises 10.8% over 12 months and then slips slightly to a still-strong 8% growth rate over six months, before accelerating to a 17.6% growth rate over three months. These are strong growth rates, very solid. March ends with an acceleration over three months that is an elevated growth rate compared to both the six-month and the 12-month pace. This makes the consumer appear strong.

Consumer nondurable goods, however, show the opposite trends and reveal a clear ongoing deceleration. Nondurable goods output rises by 0.6% over 12 months; it declines at a 1.9% annual rate over six months, then contracts sharply at a 22.1% annual rate over three months. These trends leave us completely confused about the consumer; whereas durable goods output is consistently strong, nondurable goods output is clearly contracting and contracting sharply and suddenly.

Intermediate goods show clear acceleration with output rising 6% over 12 months, accelerating to a 10.8% pace over six months, then elevating to an extremely strong 24.3% annual rate over three months. This sector is clearly very strong and pointing to strength in manufacturing.

However, capital goods undercut this trend. Capital goods output falls at a 2.6% annual rate over 12 months, ticks up with a positive growth rate of 0.2% over six months, then goes back to declining at a 2.6% annual rate over three months. The capital goods sector clearly is struggling. The consumer goods sector is mixed and it's hard to understand in this environment why intermediate goods would be so strong. What sector is being Fed by intermediate goods that intermediate goods output should continue to accelerate across all these timelines? That's a question that's unanswered by these data.

The detail by industry also shows a good deal of irregularity with food, beverages & tobacco industries showing steady growth that is nearly on an accelerating path. Textile & leather output, on the other hand, is on a clear decelerating path. Motor vehicles & trailers output technically avoids having a sequential deceleration, but practically speaking it reads like that within a decline of 15.9% over 12 months and then a decline at a 42% annual rate over three months with a tiny increase over six months sandwiched in between. Mining & quarrying output a decline 1.1% over 12 months, show accelerating decline over six months, then switch and log a strong gain at a 20% annual rate over three months. Utilities show a decline of 7.9% over 12 months, improving to a decline in 2.3% over six months, then giving way to a slight increase of 0.4% over three months. This is technically an accelerating pace, but it's still very weak growth in the utility sector.

The industrial production data for March completes data for the quarter; the quarter-to-date increase in output for the U.K. comes in at a strong 5.2% pace. It's bolstered by a 22.1% annual rate gain in consumer durable goods, a 22.2% gain in intermediate goods, a 5.8% gain in the output of capital goods, but is held back by a 14.8% pace of decline for consumer nondurable goods. Across industries, there are strong increases in food & drink and in utilities for the quarter, a small increase in textile & leather output, with a small decline in mining & quarrying and a more substantial setback for motor vehicle & trailer output.

Comparing the current levels of output to the levels of output that prevailed before COVID struck in January 2020, there are substantial and consistent increases across all sectors and all industries except for two industries: mining & quarrying and utilities. The mining & quarrying sector shows a 17.1% decline in output compared to the pre COVID level; utilities output, surprisingly, is lower by 2.9%.

Summing up the UK trends, it is hard to make an overall characterization. The numbers for the quarter-to-date turn out to be relatively strong and consistent across sectors. But that result belies the inconsistency across the recent months as well as sequential growth rates that are quite diverse across sectors.

As for the outlook, the fundamentals for the U.K. are still mixed with the virus still circulating, supply chains still disrupted, and further dislocations occurring because of war on the Ukraine and sanctions on Russia plus the new impact on supply chains that this war is having. There may be some concern in the U.K. about the dependence of Europe on energy exports from Russia. There is in Europe, as in the U.K., an excessive inflation situation. The Bank of England is much farther along dealing with it than is the European Central Bank that still seems to be planning to deal with it. This situation leaves a great element of uncertainty as to how the outlook for growth and output in the U.K. as well as in Europe will evolve.

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