Today the ONS published its third GDP reading. This is the right occasion to talk less about the main stats and to take a look at the numbers in another perspective.
But first of all, let’s start from the obvious…
GDP growth in the last quarter of 2018 was confirmed at 0.4%. 2017 annual growth was slightly revised up to 1.8% thanks to the 0.1% revision to Q1 data. Business investment was also revised up by 0.3% in q4 compared to the second release where the growth was estimated as flat.
Now, let’s see these numbers in another way
Using ONS supply and use tables for 2015 (latest available data), we have created clusters by demand intensity, one for each section of total demand. We have done this exercise for manufacturing sectors at their lowest aggregation (43 sub-sectors).
The groups have been split by intensity (this is measured as type of demand divided by total demand) and as you can see from the table we used different boundaries.
We know that this is arbitrary and the split can be done in several different ways, but the choice was in order to create groups as homogeneous as possible in terms of GVA size.
Just to make it clear, each sector is part of four groups, one for each type of demand. For example, in 2015 the final consumption demand share for the pharma sector was equal to 30.3%, investment demand was 0.4%, export demand was 41.2%, and intermediate demand was 28.2% - so pharma has been included in these groups as follows:
That’s enough about explanations, let’s see the numbers.
Export and investment focused sectors are on the lead
In the graph above we have selected the most single-demand intense groups. We said in our Manufacturing Outlook that the drivers of growth were the revived in capital investment markets and global demand, and these numbers agree with this, showing that the export intense and investment intense clusters are the best performs.
It should also be noted that there is quite a bit of composition overlapping between the two. Notably, astonishing good performers such as mechanical equipment (8.1+ % in 2017) and air & spacecraft (4.2+ % in 2017 and +5.8% in 2016) are part of both groups.
Consumer confidence is still a drag for private consumption demand
This morning the GFK consumer confidence indicator was slightly up compared to the previous read, however the read was still well under zero meaning that consumers are not that confident (as we underlined on our blog about macro-forecasting). The index has not seen an above-zero result since January 2016.
The effect of this lack of confidence, together with inflationary pressures and the consequent negative growth of real wages, hit consumer intense sectors.
The graph, indeed, shows how in 2017 sectors with consumer intensity lower than 5% (low-intensity group) have been the best performers in terms of quarterly growth. Indeed this group was also the best performer when all the 16 clusters (four for each type of demand) are taken into account.
Great end of the year for investment demand sectors
The two groups most investment intensive have enjoyed a particularly good end after an uncertain start of the year. The performance is even better when year on year growth is considered (+4.3% growth in 2017 for the high-intensity cluster) with the sectors clearly bouncing back from a poor 2015 (-1.3%) and 2013 (-3.8%).
A technical note, due to many sectors which do not produce investment goods, the low-intensity group for investment is much bigger than the other three (its share is 32%).
Exporting is a good deal at the moment
It was a story that we repeated quite a lot in the last year or so and the numbers confirm that: the non-exporting sectors are not growing as fast as those export-oriented sectors.
The most export-intense group grew by more than 3% in the last quarter of 2017 accelerating from a low growth in q3 (mainly due to the erratic pharma sector). Several manufacturers have enjoyed the mid-2016 Sterling depreciation in 2017 due to the fact that many of them are producing goods which may take a while to be delivered after the order (think about big machinery or some transport equipment).
Overall it was a great year for manufacturers, but, as always, it was even better for some of them!