From the TUC

Is manufacturing able to lead us out of recession?

09 Mar 2012, by in Economics

Manufacturing output is disappointingly low and has been for over a year. Today’s figures for output in the production industries are genuinely disappointing. I wouldn’t emphasise the disastrous Index of Production results (3.8 points down from Jsanuary 2011) which are quite erratic, so much as the Index of Manufacturing. This is positive (a 0.3 point gain on 12 montyhs ago) but terribly feeble – especially for what is supposed to be one of the bright spots of the recovery.

Manufacturing output has hardly risen the first quarter of 2011 and the Index of Manufacturing, at 95.8, is still 8.2 points below the level it had reached in January 2008, on the eve of the recession. It is now four years since then, if you take the average growth rate in the four years up to January 2008 and project it forwards, we are now 11 points below the level we might have otherwise expected to reach:

 

And even the pre-2008 growth rate was disappointing. The chart below shows the quarterly figures for the Index of Manufacturing and overall GDP – manufacturing growth lagged the rest of the economy both going in to the recession and coming out:

As the recovery began and up to early 2011 it was reasonable to see manufacturing as playing a more positive role. If you look carefully at the second chart, you can see that the manufacturing recovery from late 2009 is steeper than for total GDP. Unfortunately for George Osborne, when, in his Budget speech last year he talked about a “march of the makers”  carrying Britain aloft, this was almost exactly the moment at which this ceased to be true. The Chancellor called “forward march”, the makers heard “break step”.

This is not a pleasant point for anyone who works for the TUC. When it looked as though manufacturing could be breaking the run of economic misfortune we were genuinely pleased. As we have pointed out in our report German Lessons, the German economy, which really does cherish manufacturing, has been much stronger in the recovery. Among the lessons learned from that comparison, here’s three policies that really could make manufacturing the key to recovery:

  • A new manufacturing ecosystem
  • A focus on strategic industrial sectors
  • And, something the government could do immediately – using procurement to boost industry.