Apparent strength in manufacturing is superficial – today’s figures have been inflated by extra working day in May, says ITEM Club
Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments on today’s industrial production and manufacturing figures, and the latest trade balance data released today:
- The apparent strength in manufacturing is superficial - the figures are inflated due to an extra working day in May
- Manufacturing is still likely to exert a sizeable drag on overall growth in Q2
- The trade data is very noisy and today’s figures just take us back to where we were in early-2012
“The apparent strength in manufacturing is completely superficial as the figures are inflated by the May Bank holiday being pushed to June, giving May an extra working day. It follows that with June having two extra Bank holidays, output probably declined very sharply. The last time this happened in 2002, manufacturing output fell by almost 6% between May and June, before rebounding in July. The manufacturing sector is still likely to exert a significant drag on overall growth in Q2.
“The recent trade data has been particularly noisy and although the May deficit was much narrower than in April, it still just took us back to where we were in Q1. Looking through the monthly volatility, it is clear that the Eurozone woes are having a major impact on our exporters. Export volumes to EU countries fell by 2.5% in the three months to May, in contrast to growth of 4.7% to non-EU countries.
“In the short-term the outlook for exports remains fragile, with the Eurozone likely to slip back into recession and signs of a slowdown in the US and some of the main emerging markets like China and India. However, we are more optimistic about prospects further out, providing that the Eurozone remains intact and drags itself out of recession. With domestic demand also weak, manufacturers are likely to see demand continue to decline in the next couple of months.