The slowdown in eurozone manufacturing is easing and suggests that the worst of the industrial slowdown may be over, although activity will probably be flat at least throughout the first quarter of 2002.
The Reuters-NTC Research European purchasing managers’ index rose for the third successive month in January, but at 46.2 it remains well below the 50 level which marks the difference between expansion and contraction in manufacturing.
The rate of decline in the comparable index which measures activity in British manufacturing also eased during January. According to the purchasing managers’ survey, demand dropped for the 10th successive month. As in previous months, however, the consumer goods sector continued to outperform the broader manufacturing economy, and growth in January was the strongest for six months.
Average input costs fell to the lowest level since March 1999, according to the survey, and the recent lack of support for oil prices has led to lower input costs for plastics, chemicals and other oil derivatives. Meanwhile British manufacturers’ output prices have continued to fall as firms seek to maintain demand by passing on cost savings.
Official estimates show that wood and timber-product producers’ material and fuel costs were unchanged in January 2002, and 0.6% lower than 12 months earlier. Factory gate prices were 0.4% lower than in December, and down by a similar percentage on a year before.
In a recent survey by the CBI, 9% of timber and wood product producers – other than furniture makers – said domestic prices rose during the past four months, and a similar percentage expect prices to increase during the coming months. But 27% expect their unit manufacturing costs will increase at a faster rate than in the past four months. On the outlook for new orders, 23% expect an increase and 27% predict output will rise. Nonetheless, 36% report operating below a satisfactory rate.
The low rate of capacity utilisation, added to the pressure of low prices and reduced margins, is leading to a rising tide of corporate collapses. Company insolvencies in England and Wales rose to a seven-year high in 2001. The DTI says that 14,972 companies became insolvent, 5% more than in the previous year. A further 602 firms went bust in Scotland – a rise of 3% on 2000.
Despite rising unemployment, consumer confidence remains high and borrowing-backed spending continues apace. The latest monthly survey by GfK shows consumers becoming more optimistic about personal finances. The balance of those expecting their circumstances to improve over the next year has reached the highest level since the survey began 20 years ago.
The Bank of England reveals that consumer credit grew by £2.2bn, or 1.6%, in December. The 12-month growth rate rose to 14% from 13.1% in November, indicating that the relatively weak retail sales figures recorded in December by statisticians may be less reliable than the anecdotal reports of strong Christmas trading.
Evidence of buoyant consumer optimism comes from figures showing that demand for houses and flats, as indicated by market prices, is still increasing. Nationwide says prices rose by 11.7% in the year to January. Looking to the future, Halifax expects prices to rise more slowly this year, with weaker economic growth and a slower rise in household incomes limiting price increases to 5% year-on-year. The south of England is expected to bear the brunt.
Official figures show that housebuilding is growing strongly. Work began on 14% more homes in the three months to December 2001 than at the same time in 2000, while the increase in private sector starts was 16%.
Meanwhile January’s Purchasing Managers’ Index of overall construction industry activity indicates the fastest rate of growth for four months. Housing remains the strongest sector, but activity in the commercial sector also increased significantly. The index of future business activity continues to signal widespread optimism.
Related Files
Wood and Wood Product, Cost and Prices
Manufacturing Ouput
Housing Starts and Completions
New Construction Orders
Builders’ Joinery and Veneer Output
Furniture Costs and Prices
Wooden Furniture Output
Builders’ Carpentry and Joinery, Wooden Container Prices
