Posts Tagged ‘manufacturing’

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It was good news across most of the world yesterday – at least it was good news as far as manufacturing went. And for the UK, which really needs a recovery made of more than just rising house prices, the news was especially good. Nay, ignore that. It was spectacularly good. Can it last?

Do you remember the summer of 1994? In July a chap called Tony Blair became the new leader of the British Labour Party. In August the Provisional Irish Republican Army declared a cease-fire. In that summer Brian Lara scored the highest individual score by a batsman in first class cricket and Wet Wet Wet’s song ‘Love Is All Around” went to number one and stayed there for what seemed like forever.

Something else happened in 1994. The Purchasing Managers’ Index (PMI) tracking UK manufacturing saw its index for manufacturing output and another tracking new orders hit a peak. Neither of the indices has been higher since.

But in August 2013, according to the latest PMI for Markit/CIPS, the index tracking output rose to its highest levels since July 1994, and as for new orders, this hit its highest point since August 1994.

Not a bad set of results.

That does not mean, however, that the latest data was all good. According to the Markit/CIPS report, input prices rose at the highest rate for two years.

The overall PMI takes it all into account: new orders, output input prices and a number of other measures. The surge in input prices meant that overall the index scored 57.2. That was a two year and a half year high. To put the reading into perspective, any score over 50 is meant to suggest growth.

The truth is that the apparent recovery in manufacturing across these shores provides genuinely encouraging news on UK plc.

A recovery led by rising house prices and consumers running up debt would be worrisome. One led by manufacturing, investment and exports, especially if those exports are to emerging markets which are themselves growing, is more encouraging. Right now, there are signs that the UK is enjoying both.

But, sorry to introduce a niggle, the index tracking new export orders points to growth, but it has not risen for a while now. Some fret that this may be a sign that much of the UK recovery in UK manufacturing is being led by internal demand, which itself is coming off the back of leverage.

The hope is we will get a kind of virtuous upwards circle. Remember, at the moment wage rises are lagging behind inflation. If consumers are spending more on average, they are doing this by running up debts. But if as a result of this, manufacturing output rises, and we see a rise in construction – especially residential construction – then we may see the creation of more better-paid jobs. This may help to create a more sustainable recovery. The fear is that we are just re-running the noughties. Back then consumers ran up debts, they spent, and the UK economy became more and more imbalanced.

What we need is more investment. Alas the latest lending data points to more mortgage lending and less business lending. It is tempting to say that the UK has the same old weaknesses, and that despite a very severe recession, nothing has really changed.

It may be more accurate to say we have seen changes, but also that banks and their models have not changed much. Before 2008, it was they who loved providing mortgages, but were reluctant to provide what they saw as high risk business loans. They feel the same today.

© Investment & Business News 2013

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There are those who are a tad cynical about talk that the UK economy is recovering. They look at debt – household and government debt – and with a somewhat sardonic smirk, say “Yeah sure, the UK economy is recovering.” But if you sign up to a school of thought that there has to be something real behind an economic recovery, then there is evidence that something real is there, slowly charging a real recovery, And this something real is based on companies bringing their manufacturing back home to Blighty.

John Lewis is at it. Its boss Andy Smith has said that he wants to see sales of UK-made products increase by 15 per cent across the retail chain in 2015, taking them to a value of around 12 per cent of the company’s turnover, or £550 million. He said: “We think our customers want to buy British if they can…A big area for us is home-based: our fitted kitchens are made in Birmingham, we have beds made in Leeds. We want to help British manufacturers to grow their share as much as we can.”

Earlier this month a report from YouGov on behalf of Business Birmingham found that a third of British Businesses, which currently use overseas suppliers, are planning to source more products from the UK.
There is no one reason. Businesses cited rising costs from overseas manufacturers and simpler transport and logistics as drivers for reshoring. Right now, the move back to the UK is modest. There is little sign of a new manufacturing boom. But everything starts small and if the surveys and anecdotal evidence prove right, the boom may yet follow.

But the UK – or indeed other developed economies – is not going to be the only winner. A recent survey produced by SCM also found that companies are bringing manufacturing closer to home but not always to home, with counties such as Mexico and Poland benefiting from the reshoring trend.

However, the SCM survey also found that much of the reshoring is symbolic. Kevin O’Marah at SCM said: “Our data and interviews with more than two dozen executives show that reshoring is symbolic. It does not represent the rebirth of American or European manufacturing.” The SCM survey suggests that reshoring is being driven by automation, and there ain’t many new jobs in that.

That may be true, and it is certainly the case that reshoring to the UK will not lead to a new jobs boom, but then again it will help.

Looking further ahead, the jury is out on what effect 3D printing will have. Will it destroy jobs, as commonsense might suggest, or create jobs, as businesses find it is viable to make products for consumers to order, tailoring them to individual customers?

© Investment & Business News 2013

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The news on the UK economy is actually not bad at the moment. Oh sure there are plenty of reasons for cynicism, and some of the news may contradict common sense, but recent data is looking better, indeed, green shoots seem to be appearing.  Take as an example the latest Purchasing Managers’ Index, or PMI, on UK manufacturing.

The UK economy grew by 0.3 per cent in Q1, according to the ONS, but output is still some 3.9 per cent down from peak, which is pretty awful.

But that was in the past; what about now and what about the future?

The latest data from the ONS on industrial output was okay – it had output up by 0.1 per cent in April, after increasing by 0.7 per cent the month before and 0.9 per cent the month before that. All told, annual growth is now running at 0.6 per cent. That is still contraction, but it is getting better.

Friday saw more data from the ONS, this time on services, and again it was encouraging. The services sector grew by 0.2 per cent over the previous month in April, and is now expanding at 2.0 per cent year on year.

And now it is time to turn to June. The latest manufacturing PMI from Markit/CIPS, out this morning, hit 52.5. So what does that mean? Well, any score over 50 is meant to correspond to growth, and this particular reading was in fact the highest reading for the index in 25 months.

And especially encouraging is the more forward looking data. A sub index tracking new orders rose to its highest level since February 2011.

Markit said: “Manufacturers reported solid demand from domestic markets and clients based in Europe, China, North America, Scandinavia and the Middle East.”

There was good news on the inflation front too. Another sub index tracking input prices showed falling prices for the first time in three and a half years.

There are other signs, both factual and anecdotal, of UK manufacturing enjoying a slow march to recovery. UK car exports have risen rapidly of late and are now running neck and neck with imports. Even DHS has recently announced that it is now manufacturing sofas in the UK.

In this sense the UK seems to be following the US of slowly seeing manufacturers returning home, albeit with a time lag and on a much smaller scale.

Maybe the UK is at last benefiting from the falls in sterling which occurred three years or so ago, or maybe something deeper is at work, and as labour costs in China rise, manufacturing at home looks more attractive.

The big one of course is 3D printing. The jury is out on whether this will create or destroy jobs, but just bear in mind the following two points.

3D printing is likely to have as significant an impact on industry as mass production did in the first few decades of the last century.

3D printing may also make it viable to make niche products like never before, targeted at very small market places. Economies of scale are set to be transformed, and local 3D printing experts/craftsman may find they are in vogue. This may lead to a closing in the gap we have seen in recent years between the very richest and everyone else.

Returning to the here and now, the UK economy has plenty of problems – house prices are too high, household debt has fallen but is still at dangerous levels, too many mortgage holders will face serious problems if interest rates rise, and real wages are falling.

But recoveries have to start somewhere, and there is just a chance that that somewhere is UK manufacturing. Or is it all just hype and is the current apparent recovery just a blip?

© Investment & Business News 2013

It has been rush of good news on the US economy, but last week nearly saw it all spoilt. Thank goodness for Friday, because news out then just about saved the day, and stopped the good turning to bad.

Just to remind you: US consumer confidence has hit a five year high, US house prices are up, the US fiscal deficit is falling fast, and US banks suddenly seem to be well capitalised. For more, see: US debt is falling: does this prove austerity does not work?   US consumers create recovery, or does recovery create US consumers?  US banks see biggest profits ever: is the US back  and US economy close to shaking off last vestiges of the finance crisis 

But last week saw the latest Purchasing Managers’ Indices (PMIs) on the US economy, and they were not so good. The PMI tracking US manufacturing, and produced by ISM, fell to 49, a four year low. More to the point, since any reading under 50 points to contraction, the index suggests that the US manufacturing industry may be in recession. The PMI tracking US non-manufacturing improved in April, but with a reading of 53.7, it was nonetheless the second lowest score in nine months. Together the two indices suggest the US is growing at an annualised rate of around 1.5 per cent in Q2, from 2.4 per cent in Q1.

All eyes turned to the jobs report, which was out last Friday. This is one of the closest watched of all US indicators. In the end the report was a relief. No less than 175,000 workers joined the US non-farm payroll in May. According to the latest data, US non-farm payroll has increased by just 50,000 short of one million so far this year.

Okay, there is a chance that the latest data maybe revised downwards, but so far it looks good.

Right now, with a few exceptions in South East Asia and Latin America, the US economy seems to putting on just about the best set of data anywhere. There is even talk of manufacturers returning to the US. Yesterday Apple announced plans to manufacture one of its latest products in the US, and the latest Google/Motorola phone is being made in the US.

The US still has problems, perhaps the main ones being growing inequality, and falling median incomes. See: Will USA living standards ever again be as high as they were in the last century? 

And US student loans has the feel of a potential bubble in the making. See: Student Debt and the Crushing of the American Dream, by Joseph E Stiglitz 

But at least talk that the US is on a one way ticket to bankruptcy seems to be considerably wide of the mark. See: The scaremongers are wrong: the US is not even vaguely close to going bust 

© Investment & Business News 2013

It has been rush of good news on the US economy, but last week nearly saw it all spoilt. Thank goodness for Friday, because news out then just about saved the day, and stopped the good turning to bad.

Just to remind you: US consumer confidence has hit a five year high, US house prices are up, the US fiscal deficit is falling fast, and US banks suddenly seem to be well capitalised. For more, see:US debt is falling: does this prove austerity does not work?   US consumers create recovery, or does recovery create US consumers?   US banks see biggest profits ever: is the US back  and US economy close to shaking off last vestiges of the finance crisis 

But last week saw the latest Purchasing Managers’ Indices (PMIs) on the US economy, and they were not so good. The PMI tracking US manufacturing, and produced by ISM, fell to 49, a four year low. More to the point, since any reading under 50 points to contraction, the index suggests that the US manufacturing industry may be in recession. The PMI tracking US non-manufacturing improved in April, but with a reading of 53.7, it was nonetheless the second lowest score in nine months. Together the two indices suggest the US is growing at an annualised rate of around 1.5 per cent in Q2, from 2.4 per cent in Q1.

All eyes turned to the jobs report, which was out last Friday. This is one of the closest watched of all US indicators. In the end the report was a relief. No less than 175,000 workers joined the US non-farm payroll in May. According to the latest data, US non-farm payroll has increased by just 50,000 short of one million so far this year.

Okay, there is a chance that the latest data maybe revised downwards, but so far it looks good.

Right now, with a few exceptions in South East Asia and Latin America, the US economy seems to putting on just about the best set of data anywhere. There is even talk of manufacturers returning to the US. Yesterday Apple announced plans to manufacture one of its latest products in the US, and the latest Google/Motorola phone is being made in the US.

The US still has problems, perhaps the main ones being growing inequality, and falling median incomes. See: Will USA living standards ever again be as high as they were in the last century? 

And US student loans has the feel of a potential bubble in the making. See: Student Debt and the Crushing of the American Dream, by Joseph E Stiglitz 

But at least talk that the US is on a one way ticket to bankruptcy seems to be considerably wide of the mark. See: The scaremongers are wrong: the US is not even vaguely close to going bust 

© Investment & Business News 2013

As was pointed out here the other day, the news coming out of the US has been pretty darned good of late. See: US economy close to shaking off last vestiges of the finance crisis 

As for the UK, we have seen the tiniest hint of very small, and very flimsy green shoots.

Yesterday the data told a different story for the US, however.

The latest Purchasing Managers’ Indices for the UK and US were out. Just bear in mind, before you read on, that for these indices 50 is the magic marker. A score above 50 suggests growth; below it means contraction.

The latest PMI for US manufacturing from ISM fell from 50.7 last month to just 49, which was a four year low for the index. The sub-index tracking new orders fell from 52.3 in April to 48.8.

What can we say about that? First the good news, and then the bad.

The good news is that the US manufacturing sector is quite a small part of the US economy and data certainly does not suggest the US is back in recession.

However the weak showing, especially for new orders, may suggest that company results are not going to be quite as good in the next quarter, and that won’t be good news for equities. Oddly, markets seemed to quite like the data, because it suggests that the Fed may not stop QE quite as soon as they had feared.

Later this week will see the PMI for US non-manufacturing and then the closely watched jobs report. Watch this space.

As for the UK, the PMI rose from 49.8 to 51.3, which was a 14 month high. This was just about the best piece of news on the UK economy – ¬ setting aside rising house prices which some may say is bad news – for some time.

However, an alternative industrial trends survey index from the CBI was not quite so good.

Vicky Redwood, chief UK economist at Capital Economics, said: “May’s CIPS survey is a tentatively encouraging sign that the manufacturing sector may start to play a small part in the overall economic recovery.”

© Investment & Business News 2013

Google Glass

Back in August 2001 the Boston Consulting Group issued a report with a pretty startling conclusion. It concerned what it sees as a great shift in manufacturing away from China, as many companies return their manufacturing plants to the US. And now it has emerged that Google is to make its goggles – products that may yet prove to be one of the most significant releases of the decade – in the US; in fact, in Silicon Valley. “China’s overwhelming manufacturing cost advantage over the US is shrinking fast. Within five years…Rising Chinese wages, higher U.S. productivity, weaker dollar, and other factors will virtually close the gap between the U.S. and China for many goods consumed in North America,” or so said Boston Consulting in August 2011.

See: Boston Consulting, Made in America again

In April 2012 Boston Consulting’s survey found: “More than a third of US based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it.” See: this Boston Consulting press release
Last November another Boston survey found that “more than 80 per cent of US consumers and, perhaps more surprisingly, more than 60 per cent of Chinese consumers say that they are willing to pay more for products labelled ‘Made in USA’ than for those labelled ‘Made in China’. See: this release

Now it has emerged that Google is planning to have its Project Glass – that’s those glasses which will enable wearers to access the Internet, and indeed film everything they are looking at, just about all the time – made in the US.

Then again, we are not exactly talking Foxconn scale manufacturing here. The glasses will sell for around $1,500 and Google is planning production in the low thousands. Given those facts, you can see the benefits of making the product in America.

Presumably the mark-up on manufacturing is so large that it makes little difference if a few dollars can be shaved off the cost by making the product in China. Presumably, Google also feels that for products as complex and important as its goggles, it needs to be close to the point of manufacture.

One can also presume that in due course the price will fall, fall some more and then fall again – so much that these glasses, or products of that type, will eventually sell for prices low enough to give them a mass market appeal. Only time will tell where the products will then be made.

©2013 Investment and Business News.

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