Manufacturing Outlook 2013q3 - Top 5

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The good run of manufacturing data continues with the release of EEF's latest Business Trends Survey.

Last quarter our survey pointed to an emerging recovery following a challenging 2012. Output and orders balances were picking up and confidence about future growth prospects looked to strengthening too.

In our latest report almost all of the survey indicators showed further improvement over the past three months. Here are the top five movers:

A non-mover at No. 5: Companies continue to report hiring intentions

The balance of companies reporting recruitment over the past three months edged a bit higher to 12% compared with the previous quarter (11%) and the balance of companies expecting to increase headcount in the next quarter remains firmly in positive territory. Most of the recruitment activity remains concentrated amongst SMEs. But jobs gains were reported across most sectors over the past three months, with the exception of basic metals and electronics.

Climbing to No. 4: Sales in export markets gain ground

Official statistics showed strong growth in manufactured exports in 2013q2, with sales accelerating at the fastest rate in three years. Exports to non-EU markets surged, but with signs that growth will return to the eurozone in the second half of this year, there are reasons for UK manufacturers to be more buoyant about prospects in overseas markets. In the past three months the balance of companies reporting increased export sales jumped to 15% from 1% last quarter and the highest for two years.

% balance of change in export orders in past three monthsSource: EEF Business Trends Survey

New entry at No. 3: Domestic orders balances hit highest level since 2010q4

Edging ahead of export balances was orders from UK customers. The quarter has seen a continuation of the trend of stronger UK orders balances of the past year; a contrast to the 2010/11 period when export balances outpaced domestic ones. UK orders balances were positive across all sectors and especially strong in electrical equipment and motor vehicles. UK orders are expected to hold firm in the next quarter with a balance of 24% of manufacturers planning for another quarter of expansion.

Another climber at No. 2: Output levels set to gain further ground

In the past quarter companies reported the strongest output balances since the end of 2010 and at 32% this is a marked turnaround from the first quarter of this year, when 1% reported a fall in output. The broad based positive picture was again evident and comes on the heels of recent official statistics showing expansion in all sectors in June. Looking ahead a strong balance of manufacturers expects to see further output growth in the final months of this year. This should tee the sector up for solid expansion in activity going into 2014. Our forecasts reflect this with an upward revision to our 2014 outlook. We expect the sector to grow by 2.1%.

Straight in at No. 1: Investment intentions hit a six-year high

The standout indicator in this quarter's survey is what's happening to investment intentions. While the series has been positive, with balances above their long term average, since the end of 2009, official business investment statistics have yet to show much. In our latest survey investment intentions have leapt to a six-year high and the balance of 24% companies' planning to increase capital expenditure is the second highest in the survey's history. SMEs were the main driver of the strong positive balances this quarter, in contrast to the past couple of year when it has been larger companies that were more likely to be increasing investment plans.

% balance of change in investment intentionsSource: EEF Business Trends Survey

All in all manufacturers are reporting solid trading conditions and some optimism that this is set to continue. An expansion in export orders in good news for much needed rebalancing of the UK economy, but we need investment to follow suit if we are to see sustainable growth and a competitive manufacturing base in the long term.


Chief Economist

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