Automotive manufacturing

Automotive manufacturing

West Midlands continues to outperform the national economy

Output and employment continued to grow in December as businesses in the West Midlands ended 2016 on a high.

According to the latest regional PMI data by Lloyds Bank, the Midlands continued its robust output performance in December.

At 58.7 (previously 58.9) the West Midlands continues to outperform the national economy, with the East Midlands easing very slightly from 56.7 to 56.0.

On a national level, PMI data has rebounded strongly from its post-referendum low and now stands at its highest level since mid-2015.

National performance was buoyant across sectors with the relative strength of manufacturing (a 30-month high at 56.1 in December), which was one reason for the good performance of the Midlands in the final quarter of 2016 given its relatively large manufacturing sector and associated ManuServices.

Similarly, growth in the services sector accelerated once again to its highest level for almost 18 months, whilst construction output appears to have rebounded from its dip earlier in the year to 54.2 – its highest level for almost a year.

These figures are in line with the Markit/REC report on jobs which showed the Midlands performing particularly well with permanent placements growing at their strongest pace for over a year (and the sharpest rise in the UK).

Increased labour demand appears to have been the driving factor, which indicates further tightening of labour market conditions going into the New Year. Temporary placements also increased in December, suggesting that the regional jobs market as a whole proved buoyant at the end of 2016.

Prof Julian Beer, deputy vice-chancellor at Birmingham City University, said: “The apparent continued resilience of the regional economy in the wake of the Brexit vote is good news, with the area set to begin the New Year on a firm footing.

"Nevertheless, it is clear that investment in skills and infrastructure is needed to enable the region to remain competitive moving forward. Further research on the impact of Brexit on the region will be needed. As a major exporter, the West Midlands is heavily reliant on trade and investing in our future will ensure that we continue to thrive.”

Official ONS data on production are only available to November (with services data available to October). However, the official data thus far available appears to corroborate the earlier picture painted by PMIs with manufacturing output in November rebounding.

In particular, on a national level the beleaguered metals sector (which continues to contribute a significant portion of the West Midlands’ manufacturing output) grew by 1% in November. 

Likewise, national output in the transport manufacturing sector (the largest manufacturing industry in the Midlands and the major driver of the region’s export prowess) grew by 1% and the buoyant automotive sector saw growth of almost 1.3%. 

The latter figure suggests that output in the sector was some 20% higher than the average monthly output in 2013. All three figures bode well for regional output.

According to the latest PMI data, work-in-hand increased once again, marking the fourth consecutive month of increase. This appears to have been driven by more buoyant demand conditions and insufficient capacity to meet this stronger demand.

Corin Crane, chief executive of the Black Country Chamber of Commerce, added: “Whilst these figures are good news, it is clear that we are running up against capacity constraints, particularly around transport.

"Significant upgrades to the region’s road and rail network are needed to ensure that our manufacturers are as productive as possible. This is reflected in our conversations with local businesses and it is likely that these capacity constraints are contributing to the rise in output prices that the latest figures show.”

The continued weakness of sterling (relative to pre-referendum levels) is now providing some stimulus to the region’s exporters and manufacturers. It is perhaps unsurprising that the Midlands should be an early major beneficiary of this effect as it is the UK’s principal export region (accounting for 22.8% of England’s exports in 2015).

Nevertheless, it is clear that the depreciation of Sterling has had an impact on cost pressures with the latest PMI readings showing that regional and national costs are continuing to increase and this is now feeding through into output prices.