It’s the long awaited return of Sector Friday! *knee slide and fist pump*
For those of you that are unaware (its been a while since the last one) these are a series of blogs in which we take a look at the manufacturing sub-sectors – their characteristics, recent trends, export performance…that sort of thing. Essentially a bit of light reading to ease you through the final hours of the week…
This week we are going to focus on each sector’s demand profile i.e. where each sectors’ output goes.
Broadly speaking we can split sectors’ demand profile into 4 components: final consumption (what you and I buy), output which is invested, output exported and intermediate consumption (output that goes into other sectors supply chain).
1) Consumer Facing Sectors
We’ll kick things off with the consumer facing sectors: Food and Drink and Textiles.
These sectors' demand profile are dominated by final consumption expenditure, with 60% and 74% of final demand coming from the final consumer. With so much of final demand dependent on consumer spending habits, this does leave these sectors more vulnerable to inflationary pressures, a growing concern in the coming year. They are also unlikely to gain much from the sterling depreciation given how little these sectors export relative to the rest of manufacturing – both less than 15%.
Motor vehicles is another consumer facing sector with 40% of final demand derived from consumers. However unlike food and drink and textiles, it is also highly export intensive. Almost 30% of final demand is sent abroad, while in the automotive industry specifically, a staggering 80% of cars are exported.
2) Supply Chain Sectors
Next we’ll turn our attention to sectors predominantly in industry supply chains. Non-metallic minerals, rubber and plastics, chemicals, metal products and basic metals primarily produce goods that are used to make other things, hence most of their output goes into intermediate consumption.
For instance non-metallic minerals (bricks, mortar, glass), an essential component in construction activity sees a whopping three quarters of its output go into the construction sector or back into the sector itself. Rubber and plastics is more diverse supplying over two thirds of its output to the construction, mechanical equipment and food and drink industries.
Likewise metal products (66%) basic metals (57%) and chemicals (46.3) see the majority of their output go into intermediate consumption. However unlike the other three, basic metals and chemicals also exports a significant amount of their output at 41% and 29% respectively.
3) Capital Equipment Sectors
Metal products and rubber and plastics provide much of the inputs for our next sector: mechanical equipment. Mechanical equipment is the chief investment good in UK manufacturing – with 28% of its final demand coming from investment purposes. The sector is also export intensive – 44% of output is exported abroad – and therefore the health of the sector is often influenced by global manufacturing activity and overseas demand for capital equipment.
Electrical equipment and electronics sectors demand profiles are more evenly spread. Once again most of their demand comes from intermediate consumption (37% and 44% respectively) with much of their output used in the production of high-value capital equipment in the automotive and aerospace industries. However both sectors see a quarter of their final demand exported, while electrical equipment also has a relatively high proportion of final demand coming from consumers (26%).
4) The Black Sheep
Pharmaceuticals and other transport sectors tend not to follow the wider macroeconomic trends affecting manufacturing – mainly due to the inelastic demand nature of pharmaceuticals and long order books respectively.
Over two thirds of final demand in the pharmaceuticals sector comes from final consumption expenditure and exports (37% and 36%). Other transport, which includes the manufacturing of aircraft components, exports almost half of its final output to OEMs across the globe where final assembly takes place.
So they were the demand profiles of the respective manufacturing sectors, interesting stuff eh..? Join us next time when we will be taking another in depth look at a particular sector.