The ONS says manufacturing output is down by 1.4% but business lobbying groups say output is up. Who do you believe, and are we really in recession?
Yesterday the ONS figures rocked the Government and business community, eager for a ray of light amid Europe’s black storm clouds.
Manufacturing production fell 1.4% in the three months to July and the construction sector’s fall was nothing short of depressing.
On the same day, business group the CBI published its latest industrial trends survey, saying among other positive measures that the balance of manufacturing output was up +8% – the strongest increase seen this year. The measure is a simple deduction of companies with fewer orders (21%) from companies reporting more orders (29%).
The period was the same, the three months ending July 2012. How can this be?
Several commentators have attributed June as an anomalous month for economic data, given the double-day break created by the Jubilee and the exceptionally wet weather. But don’t the CBI survey respondents count for this too?
Also, both surveys (ONS and CBI) have a high survey pool, the CBI polling 400 manufacturers and the ONS more, but both numbers are ‘statistically significant’.
Anna Leach, head of economic analysis at the CBI, says that their survey responders tend to take a long term view and smooth out month-by-month volatility in their answers. In fact, the group finds that its survey correlates best with ONS annual growth rates.
“These are business people, and they have a long horizon. Many respondents look through the quarter-by-quarter volatility when they answer the survey. The Jubilee was not insignificant but many people have acknowledged that its impact will actually be smaller than the Royal wedding last year [with just one extra day off]. However, the ONS wants to make predictions on hard evidence, so it can only go on what statistics it has at the time – what it knows is that we lost two days in June.”
In fact the ONS board makes this concession, that it may have overplayed the affect of the Jubilee, in the small print to its forecast.
The prevailing wisdom, says Ms Leach, is that the figures for both GDP and production will be revised up.
The effect of the eurozone crisis, she says, is softening. “We see the effect of the eurozone dilute over time. In our [industrial trends] survey in October, the eurozone had a profound effect on confidence. Today it doesn’t feature so much, people have absorbed the bad news and move forward.”
Businesses, as director-general John Cridland said yesterday, are overwhelmingly of the view that business is flat but not negative, with plenty of opportunity for growth.
Manufacturers’ organisation EEF agrees that Q2 was an anomalous month and the ONS figures are not a real indication of the UK’s manufacturing health. Chief economist Lee Hopley said yesterday:
“It is very unlikely that the monthly drop in output in June implied by the figures gives a fair reflection of the underlying health of the sector,” she said. “Extended shutdowns over the bank holiday period will have hit output over the quarter, but as National Statistics points out we saw an even greater impact during the last Jubilee a decade ago.”
So are the CBI’s figures more accurate than those of the ONS? “I wouldn’t say that,” says Leach. “They are different. Our survey members iron out the volatility that the ONS chooses not to.”
Manufacturers, who have the time to pay attention to any of this stuff, can rest assured that we have not reached Armageddon yet (and today [Thursday] Italy’s bonds rallied well).
But all the business groups who represent industry will advise if your product is suitable, look beyond Europe to the BRICs and ‘new-BRIC’ groups for growth in the years to come.