Orders and output growth softens

According to CBI quarterly industrial trends survey

Growth in manufacturing activity softened in the three months to October, according to the CBI quarterly Industrial Trends Survey.

The survey of 399 firms also found that optimism about business conditions fell, for the first time in a year. While sentiment about export prospects continued to rise, it did so at a slower pace. 

Growth in output, domestic orders and export orders also eased, though remained above their respective long-run averages.

Investment intentions for the year ahead deteriorated, with spending plans for buildings at their lowest since July 2009. Expectations for spending on new equipment also weakened. Plans for investment in training and innovation remained much firmer by comparison.

Concerns over labour shortages edged up from already high levels, with the number of respondents citing them as a limitation to investment plans at the highest since October 2013. Numbers employed continued to rise strongly over the past three months, and hiring intentions for the quarter ahead remain above the long-run average.

Unit costs growth picked up compared with the previous quarter, running ahead of output price inflation, indicating an ongoing squeeze on manufacturers’ margins.

Rain Newton-Smith, CBI Chief Economist, said: “Growth in output and orders are still above historical norms, and it’s encouraging that plans for spending on innovation and training are holding their own. But we’ve seen a general softening in manufacturing activity over the past three months, with the outlook for investment becoming more subdued.

“To boost investment growth, Government should use the Budget to provide a fillip for factories through business rate reforms, including exempting new plant and machinery from rates altogether, and switching to the more recognized CPI inflation measure rather RPI when calculating upratings.”

Key findings:

·    12 per cent of firms said they were more optimistic about the general business situation than three months ago and 24 per cent were less optimistic, giving a balance of -11 per cent (down from +5 per cent in the three months to July). Optimism about export prospects for the year ahead grew (+7 per cent), albeit at a slightly slower pace than the previous quarter (+13 per cent)

·    26 per cent of firms said the volume of output over the past three months was up and 12 per cent said it was down, giving a balance of +14 per cent, above the long-run average (+2 per cent)

·    29 per cent of businesses reported an increase in total orders, and 23 per cent a decrease, giving a balance of +6 per cent. Both domestic orders (+5 per cent) and export orders (+12 per cent) grew at a slower pace, albeit remaining above their long-run averages (-4 per cent and -6 per cent respectively)

·    31 per cent of manufacturers said employee numbers were up, and 15 per cent said they were down, giving a rounded balance of +16 per cent, broadly similar to the previous quarter (+18 per cent)

·    Average unit costs grew quicker (+32 per cent) than the previous quarter (+20 per cent). Growth in average domestic prices (+19 per cent) was broadly unchanged, with export price inflation (+16 per cent) remaining above average (-8 per cent)

Key findings – looking ahead:

·    Expectations for total new orders growth (+20 per cent) are the most upbeat since April 2015 (+22 per cent), with growth in orders expected to pick up both domestically (+9 per cent) and overseas (+22 per cent)

·    Output growth is expected to pick up slightly (+19 per cent)

·    Unit costs growth is expected to remain strong next quarter (+26 per cent), and is expected to continue running ahead of domestic output price inflation (+18 per cent)

·    Investment intentions for buildings (-30 per cent) are the lowest since July 2009 (-43).

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