Manufacturing sectors show improvement

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Manufacturing contracts in April …

Today's statistical release of manufacturing output for the month of April shows modest contraction and puts a brake on the positive run of data recently seen. After two months of strong growth in February and March (of 0.7% and 1.1% respectively), the manufacturing sector contracted 0.2% in April.

… but our own survey shows output increased, on balance, in 2013q2

Taking this data at face value seems to indicate a slow start to the second quarter of 2013. However, this is not completely in line with other indicators including our own Business Trends Survey, which tells us that, on balance, manufacturing companies saw output rise in the second quarter of this year.

… and this trend was seen across most manufacturing sectors

The manufacturing sector is highly diverse – as can be seen through our recent sector friday blog series – and significant variation can be seen in the profile of growth across individual sectors. The chart below shows this variation along with the relatively broad based improvement in output balances for most sectors when compared to the average balances over the previous year.

Most sectors saw gains in past quarter relative to previous year% balance of change in output

Mechanical and other transport were the two sectors that saw their output balance weaken compared with the average over the previous year. Other transport tends to have very volatile balances quarter-on-quarter due to the nature of orders, and the sector has been a stalwart performer since the recession. Mechanical has also been a strong performer over the past few years and may be seeing a slight slowdown as China's industrial growth rates drift down and global investment prospects look more uncertain.

We expect activity to pick up through the second half of the year

Output balances for the next three months remained strong in our Business Trends Survey, with a balance of 23% of firms expecting output to improve in the next three months. Looking ahead we do expect a moderate strengthening in activity over the course of the rest of this year and into next year.

While overall we expect the sector to contract in 2013, this is largely due to the very poor economic data at the end of last year and a weaker-than-anticipated first quarter of this year. Looking to manufacturing subsectors, we are forecasting the electronics, motor vehicles and other transport sectors to expand in 2013 with all sectors, except food and drink, posting positive contributions to growth in 2014.

Sector growth rates and forecastsOutput (% change)

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