UK Businesses Plan to Spend, Hire More This Year

06-AprilUK companies are planning to spend more and hire additional employees over the next 12 months, according to professional services firm Deloitte. Approximately 80 percent of large UK businesses anticipate that they will hire new staff over the next 12 months, as well as increasing total investment.

Deloitte’s quarterly survey of finance directors is regarded as the most accurate in the business, and is frequently used to forecast long-term business development. A growing number of Britain’s chief financial officers appear to be more willing to take large risks in order to fuel expansion.

Deloitte’s chief economist Ian Stewart noted that the view that corporate spending will increase is supported by “strong risk appetite, along with positive readings on hiring and capital spending”. Deloitte believes that the UK’s largest companies may invest as much as £200 billion over the next two years.

Interestingly, the large-scale expansion plans of many leading UK companies come despite a high chance of interest rates increasing. Of the finance directors polled in the survey, 23 per cent believe that Bank of England will increase its base rate from 0.5 per cent to 0.75 per cent. 20 per cent think it will reach 1 per cent within a year.

It’s not just large businesses that plan to expand this year. Small and medium-sized companies anticipate a 12 per cent increase in spending over the next year, with the total SME spending potentially reaching £58 billion.

SMEs were polled separately by finance company GE Capital; their data also reveals that SMEs plan to hire upwards of 660,000 people over the coming 12 months. Most businesses have benefited from the decline in real wages, which makes employees cheaper to hire, relative to company earnings.

Britain’s businesses are recovering, and at a reasonable pace, according to the Office for National Statistics. Total business investment rose by 8.7 per cent during the last quarter of 2013. Data from the Deloitte survey indicates that confidence in Britain’s businesses rose more sharply than any other economic factor.

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Japanese Manufacturing Below Expectations in February

March-31Japan’s economic recovery has run into a speed bump. Factory output slowed during February to just 2.3 per cent, according to an official report released by the Japanese government.

Japan is the world’s third-largest economy, and manufacturing is arguably its most important sector. The February output decline was the first slowdown in industrial production in three months, after many economists had dubbed Japan’s recovery a success.

Analysts are now concerned that Japan could face a long-term slowdown after the last few months of ‘Abenomics’ success. The slowdown was the opposite of what most economists had expected, with established experts predicting an increase in output during February prior to sales tax increases in Japan this month.

Japan’s sales tax will increase from 5 per cent to 8 percent on the 1st of April. Tax increases are part of the government’s long-term plan to reduce Japan’s debt and refocus its economy on domestic consumption and exports. Total factory output increased by 3.8% in January, making the February decline even more surprising.

Additional data from intelligence firm Markit/JMMA reported an expected decline in manufacturing output from executives at many of Japan’s largest companies. Survey results from the Markit/JMMA analysis closely mirrored the official statistics. Other aspects of the Japanese economy, such as household spending, have also declined.

Analysts believe that the decline in household spending and weak retail sector could lead to action from the Bank of Japan. Japanese economists fear that failing to act on the slow economy could result in a repeat of Japan’s ‘lost decade’, during which low economic growth prevented many Japanese graduates from accessing jobs.

Prime Minister Shinzo Abe has prepared a detailed plan to tackle Japan’s economic woes, including tax increases aimed at increasing prices and fighting the country’s deflation issues.

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Chinese Factory Output Continues to Contract

March-25The Chinese economy faces additional roadblocks to sustained growth in the form of a slowing manufacturing sector, according to new data from the HSBC Purchasing Managers Index.

The PMI reading for March measured just 48.1, compared to a 48.5 reading during February of this year. A PMI reading of less than 50 indicates that contraction – the decline of manufacturing output – is occurring, while a reading of more than 50 is evidence of manufacturing growth.

Although HSBC’s monitoring activity in China primarily records small and medium-sized business activity in the private sector, analysts believe it could indicate a long-term slowdown in China’s valuable manufacturing sector. Official PMI data from the Chinese government will be released towards the end of the month.

China has recently taken steps to improve its economic growth in the face of falling manufacturing figures. The Chinese government hopes to increase domestic sales and encourage consumers to spend more. The country, which has previously been very dependent on exports, “needs to develop its own consumption economy.”

While China’s official Purchasing Managers Index reading of 50.2 still indicates that growth is occurring, it is an eight-month low for a historically robust and massively growth-focused economy. Total Chinese exports dropped 18 per cent in the last 12 months, resulting in a £23 billion trade deficit during February of 2014 alone.

Economists believe that China may fail to achieve its ambitious 7.5 per cent growth targets for 2014, which were set by Premier Li Keqiang at the government’s annual National People’s Congress at the beginning of March. Keqiang noted that there was some “flexibility” regarding the country’s economic goals for 2014.

China’s main priority remains jobs, and its commitment to growth is focused around the development of an internal consumption economy. Economists are awaiting the results of China’s official PMI survey for March, which tracks the output of larger, state-owned manufacturing companies.

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US Manufacturers to Benefit From Domestic Energy Boom

March-22Energy-intensive manufacturers will be some of the largest beneficiaries of United States economic growth, according to a new industry report from the Conference of Mayors. Employment in the energy-intensive manufacturing sector will increase by one per cent or more per year in the United States until 2020, the report states.

Of the jobs created in the energy-intensive manufacturing sector, more than 72 per cent will be based in major metropolitan areas. The strong growth has been made possible by the domestic natural gas and oil production boom that’s occurred over the past three years, driving 1.7 per cent annual job expansion in manufacturing.

From 2010 to 2012 alone, more than 196,000 new jobs were created in the energy-intensive manufacturing sector in metropolitan areas. The report uses data sourced from HIS Global Insight, an economic and financial information firm headquartered in Massachusetts.

Economists have called the surge in US energy production a “energy revolution” and cited growing competitiveness as an indicator of long-term US economic growth. In many major US cities, employment in industries such as machine manufacturing has increased by 9 to 10 percent in the period from 2010 to 2012 alone.

Much of the growth has been driven by cheaper energy sources, such as the massive increase in domestic natural gas production. Although the cheaper gas has driven an incredible amount of economic growth and created hundreds of thousands of jobs in major metro areas, it hasn’t been without criticism.

American environmental campaigners have criticised the fracking process used to extract natural gas from shale, noting that it has negative effects on groundwater quality and could have dangerous outcomes. Manufacturers have noted that gas extracted inside the United States has reduced dependence on foreign oil sources.


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British Manufacturing Missing ‘Generation of Apprentices’

March-21Manufacturers across the UK back Chancellor George Osborne’s vision of “a Britain that makes things again”, according to a new article in The Guardian that profiles a West Midlands manufacturer specialising in machine tools for aerospace, oil and defence firms.

BSA Machine Tools is one of many examples of declining British industry. Just over 40 years ago, the company employed a full-time staff of about 14,000 people. Today, its workforce is made up of just 38 full-time workers. Despite the long-term decline in output, its owners are optimistic that British manufacturing is on the rise.

Over the past two years, the company has taken on four apprentices, creating a new atmosphere of confidence in the economy. However, despite the company’s limited recent success, it has been forced to deal with a problem that many other British manufacturers can relate to: a nationwide shortage of apprentices.

As UK manufacturing declined over the past 40 years, the number of young people entering apprenticeships dropped at a massive speed. Although exports have shot upwards in recent months, many UK manufacturers face supply limits due to small workforces that simply can’t produce enough goods for export.

In the case of BSA Machine Tools, the company believes that despite its recent UK-based workforce growth, outsourcing to low-tech markets such as China will be an important part of its business model in the future. Interestingly, many of the firms’ target sales markets include the growing Chinese consumer class.

Despite the shortage of skilled workers, manufacturers in Britain have a lot to be optimistic about. Recent changes to energy tax policy mean that manufacturers in the UK will have a steady carbon tax for the next 12 years, and strong exports are driving growth that – despite labour issues – is pushing up industrial profits.

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British Manufacturing to Benefit From £7 Billion Energy Bill Cuts

March-19Chancellor George Osborne recently announced a £7 billion energy bill cut for UK-based manufacturers, as part of a long-term effort to reduce costs for businesses in Britain exporting products overseas. The cut will also apply to certain households, largely to reduce the pressure on consumers struggling with everyday expenses.

The cost of energy has become a major economic issue for many in Britain. Over the last month, reports have emerged of food banks preparing special ‘cold packages’ of products that can be consumed without heat. Others have reportedly dealt with a growing number of beneficiaries turning down food that requires cooking.

The package offered by George Osborne includes a freeze to the carbon tax, which is currently charged to major carbon dioxide emitters in the manufacturing sector. The carbon tax freeze will occur for ten years from 2016 and cap taxes at £18 per tonne, rather than the £30 per tonne that businesses would otherwise need to pay.

As a result of the tax freeze, large manufacturers could save as much as £50,000 per year in energy expenses. The average UK household would also benefit from the tax freeze, enjoying a £15 per year saving in energy bills. The package also includes a £1 billion payment to firms that require a lot of energy to compensate for green levies.

Numerous leading manufacturers have criticised the carbon tax, stating that it sets back British manufacturing and creates unnecessary costs for manufacturers. Most of the criticism revolves around the tax’s relatively minor impact on global carbon dioxide output in comparison to its massive cost for UK-based industry.

Manufacturing has grown at a steady pace as the economy has moved back into a growth phase. The 2014 budget is part of a long-term effort by the government to ensure that this growth is steady and to keep costs relatively low for both British households and leading manufacturers.

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March-01Consumer confidence is on the rise in the United States. With the US housing market starting to stabilize, people are increasing their spending on consumer products and previously dormant factories are ramping up production.

Supply Management Chicago Inc. released its latest regional factory barometer – an industry-wide measure of production. Its rating had increased from 59.6 in January to 59.8, indicating that manufacturing is on the rise across the US as consumers add more products to their monthly shopping lists.

Household sentiment also increased slightly, although overall economic growth in the fourth quarter of the year was slower than had previously been estimated by many economists.

John Silvia, chief economist at Wells Fargo Securities, noted that the weaker growth doesn’t necessarily mean that 2014 will be a poor year. Quite the opposite, he noted, saying: “2014 is going to be a much better year than 2013.”

The United States isn’t the only economy to pull itself out of the crisis and return to a period of reasonable growth. Japan – a country that has struggled with more than a decade of sluggish growth – is increasingly showing signs of increased inflation and improved economic performance.

Japanese industrial production increased at the highest rate since 2011, a new study confirms, and consumer prices rose at the highest rate in the last five years. Many of Europe’s largest economies have experienced reasonable increases in production, with inflation in the Eurozone exceeding analysts’ expectations in February.

Economists had not predicted the surprising growth in the Chicago manufacturing index. A recent Bloomberg survey of 53 economists predicted that the index would fall to 56.4. The index, like the Purchasing Managers’ Index, uses a 0-100 scale to indicate economic stability – ratings of exactly 50 – growth, or recession.

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UK Car Sales on the Rise

january-10The UK is now Europe’s second largest market for cars, beating out France to take second place behind Germany. Strong car sales in the UK are the result of 22 months of nonstop growth fuelled by improved economic confidence and significant payouts to consumers duped by PPI mis-selling scandals.

The Society of Motor Manufacturers and Traders (SMMT) confirmed that the total number of new cars sold increased to 2.26 million in 2013. It is now at is highest level since the beginning of the financial crisis, growing at a rate of over 11% in the last year alone.

According to the SMMT, more than 600 new cars were sold per day above the level recorded throughout 2012. Unlike other European nations, which have experienced declining automotive sales growth, the UK has been “a bright spot” in Europe, says SMMT chief executive Mike Hawes.

He believes that payouts from PPI mis-selling scandals could be fuelling part of the sales growth. Average payouts to consumers misled by the scandal of £3,000 were “enough to put a deposit down on a car”, according to the SMMT chief executive.

While the strong automotive sales have been positive news for economists, some automotive industry experts believe that a surge in new car sales could affect the value of used vehicles. John Leech, from consulting group KPMG, believes that the cheap credit used for new car sales could drive used vehicle prices down.

Due to financing arrangements, many consumers purchase cars for 36 months and switch to a new model to avoid “bullet” payments at the end of their financing deal. This could lead to a build-up of three-year-old cars, according to Mr Leech, which makes a residual price crash possible.

Top-selling UK cars include the Ford Fiesta, the Ford Focus, and the Volkswagen Golf. The Vauxhall Astra and Corsa were also popular with new car buyers.

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December US Auto Sales Fall Short of Expectations

january-05US auto sales fell below expectations during December, according to new data from leading automotive manufacturers such as Ford and Chrysler. GM shares decreased in value by 2.4% on the news that sales had dropped 6.3% over the twelve months from December 2012 until December of 2013.

Automotive industry analysts have pointed to several possible reasons for the drop in auto sales. Poor weather throughout much of the United States is believed to have kept customers from visiting car dealerships, reducing sales during one of the year’s busiest and most profitable months. analyst Michelle Krebs believes that the weather is to blame for slow sales, noting that there were several major storms at the beginning of December that affected consumers’ priorities. As a result of the stormy weather and poor sales, the December sales carried out by many dealerships have been extended into January.

Other reasons for the slow sales include the four-day Thanksgiving weekend, which many analysts believe was used as an opportunity for families to purchase vehicles prior to the beginning of December. The holiday weekend may have pushed forward sales from the end of the year, increasing November’s relative sales figures.

Certain brands have continued to perform well throughout the United States. Jeep, a brand owned by Chrysler, saw its sales rise by 34% last month. As a whole, Chrysler saw its sales rise 9% over the course of the year, making it one of the country’s top-performing automotive manufacturers.

Trucks sold particularly well in the United States last year, with new models from Chrysler brands Dodge and Jeep especially strong. The company believes that the strong truck sales can be linked to the housing market recovery, noting that truck sales increase as families move into new properties.

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Growth in UK Manufacturing Sector ‘On Track’

january-03The UK’s manufacturing sector is performing well, according to new information in the latest Markit/CIPS Manufacturing Purchasing Index. The index measures growth or decline in the manufacturing sector, with a measure of 50 indicating no change in output. The UK’s manufacturing sector recorded 57.3 during December of 2013.

Markit noted that the figure, which is slightly below November’s record high of 58.1, shows “strong growth” in the UK manufacturing sector. The sector’s growth started with a strong upsurge in output towards the end of the year, with order figures at a historically high level compared to Markit’s 22-year PMI survey index.

The growth in manufacturing could indicate a change in the UK economy, which has previously depended primarily on exports of professional services. Growth was high in the automotive industry, with UK car production increasing substantially during the last year.

Strong performance in the manufacturing sector has had positive effects on the job market. New unemployment data shows that the national jobless rate has declined over the past month, reaching 7.4 per cent. The current rate is the lowest on record since 2009, indicating a manufacturing-fuelled recovery in employment.

Much of the UK’s manufacturing growth has been driven by markets outside of the Eurozone. Emerging markets such as Brazil and Russia have been responsible for a large amount of sales, as have larger markets such as China and the United States.

Despite the strong growth, analysts are concerned that growing inflation in the UK’s manufacturing sector could lead to economic issues. CPI inflation has declined over the past year, but costs related to inputs and outputs have increased in the country’s manufacturing sector.

However, many economists believe that the manufacturing price pressures will not cause any serious issues for the Bank of England. BNP Paribas economist David Tinsley notes that the trend does, however, “underline that inflation is not dead in the UK.”

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