CBI Industrial Surveys Show Increased Pessimism among British Manufacturers

The British Confederation of Industries (CBI) conducts monthly and quarterly surveys of the Distributive Trades, the Industrial and the Service Industries.Data from the Monthly and Quarterly surveys of the Industrial Industries were published today. There has been a marked deterioration in the optimism of industrialists in the current quarter, as can be see in the first chart. In the second quarter, optimists regarding the current business situation exceed pessimists by 22%, but in the current quarter, the pessimists exceed the optimist by 6%. Similarly, the excess of optimists regarding export prospects over the next year was 29% in the second quarter, but an excess of pessimist of 3% in the current quarter.

A look at the monthly survey helps to explain the deterioration of optimism. The Percent Balances of Opinion on Total and Export Orders and Expected Volume of Output deteriorated significantly from July to August. The balance of opinion on Total orders were down 15 points to -21% in August, that on Export Orders 8 points to -17% in August and that on the expected Volume of Output 11 points to 0% in August, as can be seen in the second chart. A decline in the balance of opinion on the adequacy of finished goods Inventory is probably a positive, as far as optimism is concerned. It could mean an improvement from an overstocked situation or simply the down part of a normal inventory cycle. A rise in prices is generally cause for optimism, but in this case, the increase in the balance of opinion regarding the Expected Avg Price at which Orders Are Priced over the next three months is somewhat paradoxical. If domestic and foreign orders and output are falling, one would expect manufacturers to be expecting prices to be falling. Instead, in the current survey, the balance of opinion on the expected price at which orders are priced improved, admittedly a small amount, from -3% to 1%.

Aug '12 Aug '11 Aug '10 M/M Change Y/Y Change 2011 2010 2009 U.K. CBI Industrial Survey (% Balance) Total orders -21 -6 1 -15 -22 -9 -24 -52 Export Orders -17 -9 0 -8 -17 -8 -11 -45 Adequacy of Finished Goods Inventory 9 14 14 -5 -5 12 8 21 Expected Volume of Output over Next 3 Months 0 11 13 -11 -13 10 10 -18 Expected Avg Price at which Orders Are Priced over Next 3 mo 1 -3 9 4 -8 18 12 -10

Quarterly Survey	Q3 '12	Q2 '12	Q1 '12'	Q/Q Change	Y/Y Change	2011	2010	2009
Optimism Re: Current Business Situation vs. 3 Mo Ago	-6	22	-16	-28	10	-8	12	-28
Optimism Re: Export Prospect over Next 12 Mo vs. 3 Mo ago	-3	29	-5	-32	2	-1	14	-14