The third quarter survey shows whilst conditions across the sector have stabilised in recent months, with the pace of decline moderating after a turbulent twelve months of steep declines in output and orders, manufacturers are not signalling expectations for a quick turnaround in the sector’s fortunes.
The negative balance on investment is a particular cause for concern given the need for companies to invest for the upturn. Previous evidence suggests that investment intentions continue to be delayed from some time after the first green shoots appear.
Commenting, EEF Chief Economist, Steve Radley, said:
“Manufacturers are telling us that output is starting to stabilise but there is little sign of confidence coming back. Production is well below pre-recession levels and the road to recovery is likely to be long and bumpy. Tight cashflow and continued problems with access to finance are likely to be major roadblocks. The government has a key role to play in ensuring these problems don't prevent companies from making the investments needed to take advantage of the recovery when it comes."
Key findings:
· Fewer companies report falls in output and orders
· Job cuts continue at a slower pace
· Investment intentions remain low despite better cashflow position
· Manufacturers less downbeat about the future
· Weak recovery expected in manufacturing in 2010
Tom Lawton, Head of Manufacturing at BDO Stoy Hayward.
"Although the pace of decline is easing, it's clear that the hoped for recovery is not imminent. This quarter has seen an improvement in output and orders but both balances continue to show double digit declines and the forecasts show continuing uncertainty in these key indices. The employment picture remains bleak and manufacturers have had to stop or delay investment plans as a result of the economy and the dire state of the financial markets. The survey suggests that 2010 will be a difficult year, with subdued growth at best across the sector as a whole - and continuing huge challenges for key sub-sectors such as automotive.”
Both output and orders balances remained in double digit negative territory for the fourth successive quarter. Although they eased from the record lows seen in last quarter this was not as much as anticipated and the response levels remain below the levels seen during the trough of the last recession in 2001 Q4. Whilst there have been signs of life overseas -19% of companies reported further declines in export orders. The balance on domestic orders eased from -50% to -26%.
The regional picture remained weak with companies continuing to scale back production across all regions, although there was some improvement in output balances in nine of the ten regions. The exception was the North East, where the output balance fell by 4 percentage points. The balance of responses on orders also improved across the board.
All sectors reported an improvement in output balances, although they remain in negative territory. With the exception of electrical equipment, all other sectors reported stronger order balances, although electronics was the only one to enter positive territory (7%). The largest increase in the orders balance was in motor vehicles, which rose from -79% to -28%, in part due to the impact of the car scrappage schemes, here and abroad.
The pace of job cuts eased (-40% to -29%) after the large reductions earlier this year. The outlook for employment remains weak going forward given the uncertainty facing a lot of companies. The damage to confidence caused by the recession is further illustrated by the balance on investment intentions, which remains near historic lows.
Looking forward, whilst companies expect to see an improvement in demand in the next quarter and into 2010, the picture remains mixed. As a result we expect manufacturing to contract by 10.5% this year but post modest growth of 0.5% in 2010.
ENDS
The survey was conducted between August 5 and August 26, with 639 companies responding. The results presented cover the full range of engineering sectors – metals, metal products, mechanical engineering, electronics, electrical engineering, motor vehicles and other transport equipment.