- While the August CBI industrial trends survey shows overall improvement, it is still relatively weak and portrays a markedly less upbeat picture of the manufacturing sector than the purchasing managers sector
- The modestly improved August CBI industrial trends survey follows on from the “flash” August purchasing managers’ survey, reporting manufacturing activity picked up to a 30-month high (and joint manufacturing and services activity to an 82-month high)
- The orders balance in the CBI survey rose to a five-month high, but was still well below normal levels
- Output over the past three months was reported to have fallen markedly, albeit at a reduced rate after a record decline in the three months to July
- Despite only modest improvement in the August CBI industrial trends survey, the overall impression remains that the economy will see a substantial rebound in the third quarter after GDP contracted a record 20.4% quarter-on-quarter in the third quarter. This impression is fuelled by the robust August purchasing managers' survey and the healthy gain in July retail sales
- The EY ITEM Club expects GDP growth of at least 12% quarter-on-quarter in Q3 and it could reach around 15% as the economy benefits from reduced lockdown restrictions and the release of pent-up demand
- However, the EY ITEM Club suspects growth is likely to slow appreciably in Q4 as unemployment rises markedly following the end of the furlough scheme and the boost from pent-up demand wanes
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The CBI industrial trends survey for August showed only modest overall improvement, indicating that the manufacturing sector is benefitting gradually from the progressive easing of lockdown restrictions.
“The orders balance rose for a third month running, but only modestly to be at a five-month high of -44% in August from -46% in July, -58% in June and -62% in May, which had been the lowest level since October 1981. The balance had previously weakened to May’s low of -56% in April and -29% in March. Nevertheless, at -44% in August, the balance was still hugely below the long-term average of -14%.
“Domestic orders showed improvement in August.
“Foreign demand improved modestly for a second month running in August, having been at a record low in June (the series started in April 1977). Specifically, the export orders balance improved to -60% in August from -64% in July and -79% in June. However, it was still well below the March level of -28%. At -60% in August, it was substantially below the long-term average of -18%.
“Manufacturing volumes were reported to have fallen at a reduced rate over the three months to August, after declining at a record rate over the three months to July (the series started in July 1975). A balance of -46% reported a rise in output in the three months to August compared to -59% in the three months to July. The balance had previously deteriorated to July’s record low of -57% in June, -54% in May, -21% in April and -8% in March.
“The CBI reported that output volumes dropped in 16 out of 17 sub-sectors. The headline fall in output volumes was led by the mechanical engineering sub-sector.
“A balance of -10% of manufacturers expect a rise in output over the next three months.
“A balance of -5% of manufacturers expect to raise prices over the next three months, down from +4% in July, suggesting that manufacturers feel a need to price competitively to gain business.”