The manufacturing figures for March were released this week. After growth of 6.6% in January and 5.0% in February manufacturing growth was just 2.7% in March. In the month, capital goods and engineering were up 7%, metal bashers were up by 4% but consumer durables were down by 3%. So is the manufacturing miracle over? What will happen to growth this year?
During the course of the recession, manufacturing fell by 15% from peak to trough. The strong growth in the recovery is not unusual at this stage in the cycle. Manufacturing is some eight per cent higher than the low but still some 9% off the peak achieved in the first quarter of 2008.
The growth in manufacturing is not evidence or a “rebalancing” of the economy, it is more like evidence of a hit and run victim regaining consciousness. It’s a recovery not a manufacturing miracle.
JCB manufacturers of those lovely big yellow diggers, recently announced output increases from 36,000 units to 51,600 units, a recovery of over 40%. Great news but this still leaves output down by almost 30% from the 72,000 unit sales achieved at the peak. The JCB peak to trough fall was 50%.
On Wednesday, at a Business Briefing Session with Chris Barry and Business Desk, Fred Ellis of Storey Manufacturing, supplier of metal components to JCB and Caterpillar, explained that output had fallen by 75% during the slow down. Fred was still not sure how their company had survived at all. Quick response to shed staff with little bank debt undoubtedly helped.
JCB is responding to “booming markets” by expanding capacity in Brazil and India as the overseas recovery gains pace rather than adding capacity in the UK.
At the Bank of England and the Treasury, talk continues of a manufacturing resurgence, export growth and a rebalancing of the economy. In a recent review the Bank of England Agents were dispatched around the country to explain why import growth remained so strong and why manufacturers were not responding to the weakness of Sterling by expanding capacity as their 1960 textbooks and economics models suggest.
It is amazing to think, the Bank of England Agents were in operation when Rothschilds runners brought early news of the defeat of Napoleon. Now CNN, Sky and PMI Markit can do the job much more efficiently for Canary Wharf but not for Threadneedle Street apparently.
We expect manufacturing output to grow by 5% this year but this will still leave output down by 5% from the 2008 peak. This is not resurgence and it is not rebalancing in response to the devaluation of Sterling. Unless we are able to analyse what is happening realistically, we will never be able to shape policy effectively.
Sign up today and "subscribe" for e-mail notification of updates. ONS Link.
The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.
Comments