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Economy in Brief

U.K. CBI Industrial Survey Weakens As Expectations Show Life
by Robert Brusca  January 26, 2016

The U.K. CBI survey for January shows a sizeable drop in industrial orders for U.K. industrial firms. The index, a diffusion reading in this survey, fell to -15 in January from -7 in December. It is the weakest reading since October 2015 (-18). At a value of -15, the queue ranking of the metric stands at its 55th percentile, leaving it still above its historic median despite its weak negative reading.

Export orders also fell in January, dropping to -22 from December's -18. This is the weakest reading since November (-29) but carries a significantly lower queue ranking as it stands in its 46th percentile below its historic median. Export orders are contracting at more firms than they are expanding and the overall up-minus-down respondent balance is weak.

Stocks of finished goods rose to 13 in January from 10 in December. Still, this is only a metric with a 28th percentile standing, but it does represent a move to higher inventories contrarily as orders are fading.

The look-ahead volume expectation for the next three months is upbeat; that metric is up to 14 in January from -5 in December. Firms see the recent weakness as temporary. The January surge in the outlook leaves expectations as their highest since August of last year. The metric has a reasonable firm 69th percentile standing as well.

The outlook for prices remains restrained. The raw outlook metric is up in January to 1 from -2 in December, the first positive number since a lone reading of one in July of last year. Price expectations have been preponderantly weak since July 2014. This month's blip should not be taken too seriously especially in the environment with oil and commodity prices still crashing on a global scale. It's impossible to know what is in the mind of the survey participants to see expectations of price firmness in this environment, but then they also registered expectations of better sales volumes ahead despite weakening orders.

On balance, U.K. industrial firms still show that they operate in a challenging environment. Their upbeat expectations for improved volumes ahead will be tested. Expected future sales volumes were this strong or stronger from March 2013 through August 2015. So there is a recent precedent for this sort of optimism. However, since September of last year, expectations have been scaled back and orders trends have deteriorated. We will soon see if this optimism has a basis or if it is hopeful optimism. An industrial survey from Belgium today for January turned sharply south. Conditions in the EMU continue to be challenging as we also saw in yesterday's German Ifo report. And the U.K. economy remains tightly plugged into trade with EMU members.

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