Manufacturing and Retail Up in Early 2010

Following downbeat figures on unemployment yesterday, two other surveys should give you cause for hope, however small, that the economy is on the mend.

First, ONS has released figures that retail sales rose 2.2 percent in March, year on year. A dip in food sales was offset by a 6.7 percent hike in non-food sales. Volumes for the quarter from January through the march rose by 1.7 per cent, compared to the previous quarter. It's possible sales values were helped by a rise in inflation to 3.4 per cent in March, driven mainly by petrol prices.

The second indicator of economic convalescence is the CBI's latest Industrial trends survey, which polled 439 of its members in the manufacturing sector and found a net 12 percent of them said they'd seen their first significant growth since January 2008.
According to accountants BDO, the manufacturing sector accounts for about 12 percent of UK GDP, so signs that orders are picking up shouldn't be sniffed at. However, as CBI chief economic advisor Ian McCafferty pointed out, manufacturing output shrank a great deal over the last two years, so production has a long way to come back up from.

Up to now, manufacturing output has been hampered by destocking, which the CBI says has been completed, seeding the demand for manufactured goods and hence the return to pre 2008 optimism in the sector.

The survey also identified a strengthening of confidence in exports, helped by the weak sterling but also driven by a demand for UK goods overseas, maintains McCafferty.

On the other side, raw materials, such as rubber and metals have risen in price, squeezing margins. This will force manufacturers to raise prices for finished goods in the next three months.

Interestingly, the sectors that stand out most in terms of increased business are manufactured metals and glass and ceramics, both materials that feature highly in the construction industry, another sector that took a huge dip over the last two years and is starting to crawl out of a massive trough.

Unfortunately, although confidence within the sector is picking up, intentions to invest are still muted. Around one in 10 respondents said they expected to invest in training, retraining and product innovation. This is against 16 per cent who said capital expenditure on buildings was expected to decline and 62 percent of firms that said they were working below capacity. Consequently, it will still be some time until the current optimism will be translated into new jobs in the sector.

So, while it's a long way from full economic recovery, at least the figures moving in the right direction.

(Pic: Payton Chung cc2.0)