Economy in Brief: 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.

The S&P Global flash PMIs for EMU in April advanced to 55.8 from a finalized 54.9 in March. The manufacturing reading slipped lower to 55.3 on a flash basis compared to its finalized March value of 56.5. The flash services reading rises to 57.7 in April compared to a finalized 55.6 in March. The service sector improves on the month while manufacturing steps back. Due to the weight of services, the overall composite index improves.

These readings are for April and by now they represent about two months of time that has passed since the Russia-Ukraine war broke out. The impact on the PMIs over this period is mixed. EMU manufacturing flash is at 55.3 in April compared to 58.2 in February; the services flash at 57.7 in April compares to 55.5 in February. Manufacturing is weaker and services is stronger in line with their respective month-to-month change as well. Of course, two months is not much time to pass, and the sanctions were not imposed exactly from the outset of the conflict and so we should be wary that there may be more repercussions to come in the months ahead.

In the discussion that follows, it will be understood that any reference to April data refers to a flash estimate and any estimate to historic data refers to finalized estimates.

For Germany, the results are slightly different. The composite is weaker month-to-month along with manufacturing while services are stronger month-to-month. Comparing April to February for Germany, the composite is lower, manufacturing is lower, but services are stronger.

For France, the composite is stronger month-to-month along with both manufacturing and services. Compared to their February values, manufacturing is weaker, but services are stronger and the composite is stronger overall.

For the U.K., month-to-month the composite and services are weaker while manufacturing is stronger. Compared to February, both sectors as well as the composite are weaker in the U.K.

In Japan, the composite is slightly stronger, and services are slightly stronger ticking up to a diffusion value of 50.5 showing expansion which is a reversal from earlier months. Manufacturing, however, is weaker month-to-month in Japan. Compared to February, all the Japanese readings are stronger in April.

The U.S. shows mixed performance with the composite weaker month-to-month, manufacturing stronger and services showing significant weakness compared to March. Comparing the April values to February, the U.S. composite is weaker and services are weaker, but the manufacturing sector is stronger.

The S&P Global PMIs show mixed patterns for broader changes as well. Over three months, all the EMU readings are weaker; the same is true for the U.S. However, for Germany, the composite, the manufacturing and the service sectors all are stronger over three months; France, the U.K., and Japan show mixed conditions. Over six months, the European Monetary Union shows the composite, the manufacturing sector, and the service sector are weaker. Germany, the U.S. and the U.K. show that same result. In contrast, Japan shows three stronger readings. France shows weakness except for services that are stronger over six months.

Over 12 months, all sectors and all these reporting units have stronger readings.

The queue (or rank) standings show some significant differences across countries and areas. The European Monetary Union has a composite ranking in its 80th percentile, France is at its 94th percentile; the U.K. is at its 82nd percentile. However, Germany has only a 64-percentile ranking. The U.S. is only at its 56th percentile with Japan in its 66th percentile standing. For France, the composite index is very strong; for the U.K. and EMU there's significant strength; however, elsewhere, composite indexes show only moderate firmness.

Manufacturing is in its 80th percentile or better in the U.S., Japan, and France. The standing is in the 60th percentile for the European Monetary Union and for the U.K. For Germany, the standing for manufacturing is only in its 47th percentile, below its historic median for this period.

However, it is the service sectors that show the most disparity. In the European Monetary Union, the services sector has a 92-percentile standing; the same standing holds for Germany. For France, the standing is even higher at the 98th percentile, marking an all time high for this period. In the U.K., the service sector has an 84-percentile standing, but in Japan, the service sector only has a 52-percentile standing. In U.S., the service sector has an anemic 45-percentile standing, below its historic median.

Total German industrial orders fell by 2.2% in February after gaining 2.3% month-to-month in January and 2.4% in December. This decline ends a strong run for orders in Germany. February, of course, is the month in which the invasion of Ukraine began - it was in late-February - so we are likely still looking ahead to the impact of that invasion on German orders. As things stand, over 12 months German orders are rising 2.9%, over six months the annual rate bumps up to 4.8%, and over three months the annual rate of expansion is at 10.2%. German orders are still on an accelerating trend, but it looks like that's about to be cut short by war.

Foreign orders German foreign orders have been a little bit more irregular month-to-month; they fell by 3.3% in February after rising 9.5% in January and falling by 3% in December. Foreign orders are up by 4.1% over 12 months, they rise at an 8.6% annual rate over six months and accelerate to an 11.2% pace over three months.

Domestic orders German domestic orders fall by 0.2% in February after falling by 7.2% in January and rising by 10.5% in December. Domestic orders rise by 1.3% over 12 months, they fall at a 0.6% rate over six months and then they rebound to rise at a 9.4% annual rate over three months. German domestic orders are weaker overall than foreign orders and their path is one that is more erratic.

Quarter-to-date In quarter to date basis, which is two months into the current quarter, total orders are rising at a 19.8% annual rate. Foreign orders are rising at a 41.5% annual rate while domestic orders are falling at a 6% annual rate.

Real manufacturing and mining sales patterns Real sales by sector are more erratic than orders have been. Real sales from mining and manufacturing fell 1.4% in February after rising 1.5% in January and gaining 0.8% in December. Sequentially, mining and manufacturing sector sales are rising, but apart from showing growth there is no acceleration. Over 12 months sales gain 4.2%, that accelerates sharply to 17.2% over six months then backs down to a 3.6% annual rate over three months. Manufacturing sales by themselves show the same pattern.

Real manufacturing sales by sector While sales by sector are also erratic, they show growth. Consumer goods sales rise 5.8% over 12 months, slip back to 4.8% at an annual rate over six months and then jump to an 8.5% annual rate over three months. The strength in sales comes from consumer durables that rise by 7% over 12 months, increase their pace to 12.6% over six months and then accelerate further to 22.7% annual rate over three months. In contrast, consumer nondurable goods sales are more erratic, rising by 5.5% over 12 months, slowing into a 3.2% annual rate over six months and then rising at a 6.1% annual rate over three months. Capital goods rise by 1.4% over 12 months, accelerate to a sharp 28.3% annual rate over six months and then decline at a 5.2% annual rate over three months. Intermediate goods show a 3.7% growth rate over 12 months, rising to a 6.9% pace over six months following back to a 3.9% pace over three months. Real sector sales are much more sluggish than orders. Orders usually lead, but this gap could also reflect supply chain problems.

Quarter-to-date by sector Quarter-to-date growth rates by sector show a 12.9% annual rate for manufacturing with overall consumer goods at a 5.4% annual rate, led by a 17.2% annual rate for consumer durables and held back by a 3.5% annual rate for consumer nondurables. Capital goods sales are rising at a 17.2% annual rate; intermediate goods gain at just a 0.9% annual rate.

Big Four EMU economies and their EU metrics The industrial readings according to the EU industrial confidence index show different patterns for the largest economies in the European Monetary Union. For Germany, the net readings are strong, but they decay from December to January to February; they also show sequential monthly decay in Italy. France shows an erratic monthly pattern while Spain shows monthly acceleration. The queue standings for each of these countries that place the current reading in a ranked queue of data since 1990 show all of them to be strong, in their 90th percentile or higher for this period. Spain has the highest relative standing at 99.7%, followed by Germany at 98.7%, France at 94.7%, and Italy at 92.8%. According to the EU data, the industrial sectors are strong in all these countries – this is ahead of the outbreak of war...

Compare to the pre-Covid situation Looking at changes back to January 2020 before the Covid struck, we see the largest gain and the German industrial sector where its EU index is up by 36.5 points; for France, Italy and Spain, the indexes are up by 12 to 14 points for the period. On the same timeline, German orders are up by 7% with foreign orders up 7.1% and domestic orders up by 6.9%; these metrics reveal a tightly clustered sense of rebound. However, sector sales are very different matter. For Germany, mining and manufacturing sales are down by 1.3% on this timeline while manufacturing alone has sales down by 1.2%. Consumer goods sales are down by 0.4% although durable consumer goods sales are up by 6.1% and consumer nondurables sales are down by 1.5%. Capital goods sales are down by 5.8% while intermediate goods post an increase of 2.9%. Order-versus-sales metrics look very different.