The UK manufacturing boom is boosting both GDP and productivity

Today will bring us up to speed or at least up to the end of November on a range of areas of the UK economy. Some of it may well be contrasting as we mull the hoped for manufacturing boom but also not that the construction sector has fallen into a recession. As we do so there are plenty of more up to date influences at play as we note that the UK Pound £ has improved to around US $1.35 versus the US Dollar which means that on annual inflation comparisons it no longer boosts inflation as it is up around 13 cents over that period. So instead it will come to be a brake on our above target inflationary episode although as ever life is not simple as we note that the rise in the oil price I looked at on the has continued with the price of a barrel of Brent Crude Oil pushing above US $69 this morning making a three-year high.

Wages

We so rarely see good news in this area so let me bring you this from today’s Sainsburys results.

The 4% pay rise for staff was paid for out of cost savings says Mike Coupe, CEO ….so no impact on pricing or margins…. ( h/t Karen Tso of CNBC)

We see so little sign of wage growth above 2% these days so anything like this is welcome and indeed if we look a little further it is not the only such sign in the retail sector.

 Aldi is increasing pay for store staff after it enjoyed a bumper Christmas with sales up 15% in December…..

Aldi said it was increasing the minimum hourly rate of pay for store assistants to £8.85 nationally, a 3.75% rise, and to £10.20 in London, a 4.6% boost, from 1 February.

The company, which also pays employees for breaks unlike some chains, claimed it was reaffirming its position as the UK’s highest-paying supermarket.

The rates match the independently verified living wage recommended by the Living Wage Foundation, although Aldi is not formally accredited to the scheme as not all its workers are guaranteed the rate as a minimum.

As you were probably already aware the retail sector is not a high payer so the increases are good news in an era of concern over poverty whilst being at work and higher food bank usage.  Or to put it another way an era where we have a need for a Living Wage Foundation.

Mind you not all wage boosts are well received. From yesterday’s Guardian.

The chief executive of housebuilder Persimmon has insisted he deserves his £110m bonus because he has “worked very hard” to reinvigorate the housing market.

Jeff Fairburn collected the first £50m worth of shares on New Year’s Eve from the record-breaking bonus scheme that has been described as “obscene” and “corporate looting”. He will qualify for another £60m of profits from the scheme this year.

That will no doubt be much more than the total effect of the Sainsburys wages rise and in fact we can go further.

The scheme – believed to be Britain’s most generous-ever bonus payout – will hand more than £500m to those 140 senior staff.

The real problem is that this has mostly been fed to them by the UK taxpayer via this.

More than half the homes sold by York-based Persimmon last year went to help-to-buy recipients, meaning government money helped finance the sales.

Noble Francis has kindly helped us out on the subject.

Apropos of nothing, Persimmon‘s share price from the day before Help to Buy (19 March 2013) was announced till 8 January 2018. A 183% rise.

Whilst equity markets have been having a good run the general move is of course nothing like that.

What about consumer credit?

According to the Bank of England worries from people like me are overblown, From the Bank Underground blog.

Credit growth not being disproportionately driven by subprime borrowers is reassuring. As is the lack of evidence that mortgage lending restrictions are pushing mortgagors towards taking on consumer credit.

So that’s alright then. But now that a reassuring line has been taking ( both for unsecured credit and the author’s careers) there is of course the fear that my analysis may be right so we get.

But vulnerabilities remain. Consumers remain indebted for longer than previously thought. And renters with squeezed finances may be an increasingly important (and vulnerable) driver of growth in consumer credit.

In the end it is a bit like the Japanese word Hai which we translate as yes but in my time there I learnt that it also covers maybe and can slide therefore into no!

Today’s Data

Manufacturing

There is a continuation of what is rapidly becoming a good news area for the UK economy.

Manufacturing output increased ( 0.4%) for the seventh consecutive month, for the first time on record;

If we look for more detail we see this.

Manufacturing has shown similar signs of strength with output rising by 1.4% in the three months to November 2017…….Manufacturing output was 3.9% higher in the three months to November 2017 compared with the same three months in 2016, which is the strongest rate of growth since March 2011; on this basis, growth has now been above 3% for four consecutive three-months-on-a-year periods, which is the first time since June 2011.

We know from the various business surveys ( CBI and Markit PMI) that this is expected to continue. The growth is broad-based although regular readers will not be surprised that one area failed to take part.

 The downward contribution came from a decrease of 7.1% in motor vehicles, trailers and semi-trailers; the largest fall since August 2014 when it fell by 7.7%.

This of course provides food for thought for the unsecured credit analysis above via car loans.

Production

This too was upbeat mostly as a function of manufacturing which provided 2.77% of the growth recorded below.

Total production increased by 3.3% in the three months to November 2017, compared with the same three months to November 2016.

There was good news from the past tucked away in this as October’s numbers were revised higher.

Trade

For once we had some better news here.

The total UK trade (goods and services) deficit narrowed by £2.1 billion to £6.2 billion in the three months to November 2017; excluding erratic commodities, the total deficit narrowed by £1.2 billion to £6.1 billion.

As ever we have a deficit but maybe we are beginning to see the impact of better manufacturing data and more of this would help/

a £0.9 billion widening of the trade in services surplus due to increases in exports.

Actually the general export position is looking the best it has been for some time.

The UK total trade deficit (goods and services) narrowed by £4.3 billion between the three months to November 2016 and the three months to November 2017; this was due primarily to a 10.6% (£8.4 billion) increase in goods exports, which was higher than the increase in goods imports.

Is that the lower overall level of the UK Pound £ in play? Or to be more specific the reverse J curve ending and the more formal J Curve beginning.

Construction

There was a glimmer of good news here.

Construction output rose by 0.4% in November 2017 as growth in private new housing increased by 4.1%,

However that is not yet enough to end the recessionary winds blowing across this sector.

Construction output fell by 2.0% in the three months to November 2017, which is the largest three-month fall since August 2012

Comment

The news is good for manufacturing and must be received rather wryly by the former Governor of the Bank of England Baron King of Lothbury. He of course talked often about a rebalancing towards manufacturing but the fall in the Pound £ on his watch (2007/08) did not help much, whereas the post June 2016 fall is doing better. The difference in my opinion is that the world economic situation is much better. Also we may see more of this which hopefully will help wage growth.

UK labour productivity, as measured by output per hour, is estimated to have grown by 0.9% from Quarter 2 (Apr to June) 2017 to Quarter 3 (July to Sept) 2017; this is the largest increase in productivity since Quarter 2 2011.

The manufacturing boom has lifted production and finally seems to be impacting on trade which might have Baron King putting a splash of cognac in his morning coffee! Mind you the current incumbent of that role may have some food for thought also from the trade improvement as Rebecca Harding points out.

Has anyone told the how closely correlated with financial fraud trade in works of art is?

Isn’t Mark Carney a keen art buyer? Anyway I am sure there is nothing to see there and we should move on.

The cloud in the silver lining is construction which is beginning to benefit from some extra house building but has yet to break the recessionary winds blowing. On a personal level it is hard to believe with all the building at Nine Elms so near which must be that elsewhere there must be quite a desert.

 

 

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17 thoughts on “The UK manufacturing boom is boosting both GDP and productivity

  1. Happy new year Shuan.

    Great article as always. I’d just thought I’d share an anecdote about our recent remortgage.Despite having a low ltv, no debt etc, we’ve fallen foul of the new banking lending criteria.

    At age 45, they would no longer give us a 25yr mortgage. It had to be twenty. So despite our interest rate decreasing to the lowest ever, our payments are rising. Its no biggie, but if this is happening on a larger scale….. More money flowing out of the economy towards the banks.

      • point out the lie that you are fit to work until 67 or even 70 doesn’t it?

        wonder when someone will take them to court over the age discrimination act ?

        Forbin

        Popcorn doesn’t mind your age ……

  2. Hi Shaun, thanks for your reminder about manufacturing although with it current contribution to GDP, probably 7% and not rising then is it even relevant to our housing and service oriented economy?
    I noted the propoganda in the FT yesterday, saying dont worry it is the wealthier or at least those with most “assets” who are taking on the extra unsecured consumer debt. Thta is a circular argument and one on unsound foundations… if the value of homeowners property is truly underwriting the extra leverage then there is one hell of a positive feedback loop should property ever fall.

    Anyway, most readers of your blog are well aware of the dead-end street we are driving along. I can’ t a couple of percent improvement in Manu fixing any of the other problems. Just look the UK Govt leadership issues this week.

    • Hi Paul

      Manufacturing is a larger percentage of production these days but production has been shrinking. Anyway it is now just under 10.1% of UK GDP according to the numbers in today’s statistical bulletin.

      The official view is always that the debt is fine until it isn’t at which point the previous excuses and rationales get redacted…….

    • Hi Hotairmail.

      You are ahead of the official figures which have only arrived at last November. So we can expect the main impact to be next month where the North Sea Oil and Gas section will take a hit. The pipeline was closed from the 11th and did not begin to be opened until the 28th so there will be a reduction in recorded output. The total oil and gas output is 6.5% of production so we could see a fair sized hit.

  3. ” … Bank of England Baron King of Lothbury. He of course talked often….”

    indeed , quite so .

    no action though ……. Masterly don’t you think ?

    look at his RPI linked pension ……. the joke is on us, the tax payer of course…

    Forbin

    • Hi Forbin

      Well he has his pension and he has been loaded with titles in addition to being a Baron “Most Noble Order of the Garter”, “Knight Grand Cross of the Most Excellent Order of the British Empire”, “Deputy Lieutenant” and “Fellowship of the British Academy” . So I guess he is doing okay with his book and other roles….

  4. Hi Shaun,
    Happy New Year and I am glad you are back with your take on the news.

    As an aside, as we will not be able to export our rubbish to China, will this lead to an even greater balance of payments crisis? Do we pay them or do they buy the contents of our bins?

    • Hi Foxy

      I think from this in the Guardian last December that we get some money and it is an export but I doubt the numbers are that large.

      “Mary Creagh MP, chair of the Environmental Audit Committee, has warned the ban could mean “a double whammy for council tax payers” if the price of exported waste falls and the cost of UK disposal rises”

      • Why did TPTB not see this coming? One day China was going to have enough rubbish of its own, without recycling ours. Where are the contingency plans and what has the Environmental Audit Committee ever said or done about it.

        Never ask a politician to run a country, they just mess it up.

  5. Apropos of nothing in particular, but I wondered Shaun if you had developed any further views of how much of UK’s exports, goods and services , actually goes to EU countries. The bald statistic says 43% in 2016. The ONS after months of deliberation, invented a number of 2% for the ‘Rotterdam’ effect within this number ( 50% of 50% of exports to the Netherlands). However I wonder how much of ‘goods’ now goes by air. London is seemingly well served by air freight, but this can be misleading. There appears to be huge swathes of the globe that have no direct flights into or out of London. Therefore I wonder how flights through say Frankfurt, Amsterdam, Paris are calculated?
    And how exactly do services get counted/valued per country? With transfer pricing running amok etc, how does ONS know that a Euro service from the City actually got sold to a client in say Frankfurt or whether it was part of an arrangement that ended up in Singapore?
    Just my musings, but I really do have a difficulty believing almost any official ‘stats’ these days, especially ones that are stated to anything other than a whole number.

    • Hi Jim

      With the various problems that the trade figures have it has hard to possess much confidence in the detail for countries. We do at least have some numbers for goods trade but we not have much at all for services. So I agree completely we do not know with anything like the accuracy claimed. For a start I would suspect we would get another answer if we looked at the mirror image as in trade recorded by France or the US for example.

  6. Hi Shaun, quite a tour de force today so thank you. I hope it’s not banned, the use of the B word, but many Brexiteers are hailing these figures of proof that Brexit isn’t affecting trade adversely. I find it amazing how rude they become when I point out that because the EU trade situation is improving so are we. The big question is, is this the “boom” before the next bust?

    • Hi bill

      The simple truth is that we do not know what the breakdown of the increased UK exports is between the price competitiveness given by a lower £ post the EU-Leave vote and the favourable world trade position. Any view is opinion. Also as I have just replied to Jim the numbers are not that accurate in the first place.

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