EEF's latest Business Trends Survey shows that against previous quarter's expectations of an improvement in trading conditions, manufacturers report a further weakening in the final months of this year, with few indications that prospects will look signficantly brighter in the short-term.
Output and orders balances weaken further
This quarter saw a continuation of the weak output and order balances that we saw in the second quarter of 2012. A balance of zero companies reported output increased in the past three months and a balance of 3% reported orders increased. These weak output balances are being driven to a large extent by the widespread uncertainty in Europe. Companies that rely heavily on European Union markets have been particularly hard hit – a higher balance of companies with a larger share of their exports going to the European Union are reporting total output balances decreasing.
Export orders turn negative
For the third quarter in a row both domestic and export orders weakened further and export order balances turned negative for the first time since the end of 2009. Export orders in the past three months were also weaker than domestic orders, something which has only happened once since 2008.
Investment intentions still positive
Despite the slowdown in orders, investment balances have continued to hold up. A balance of 10% of companies said they planned to increase investment levels in the year ahead, down from a balance of 15% last quarter. Over the past three months investment balances were held up by sectors that also had positive output and order balances in the past three months, with other transport and electrical equipment showing the strongest investment balances. Weaker cashflow balances may also be feeding through into lower investment intentions.
Recruitment intentions weaken for first time in two years
For the first time since the middle of 2010 employment balances have fallen away. A balance of zero companies said they had increased employment over the past three months.Some of this drop may be due to the effects of companies reducing their intake of apprentices but some sectors, particularly those with very poor output and order balances, have also been reducing headcount.
Confidence fragile for the next quarter
There appears to be limted expectations of an improvement in the outlook for the next quarter with forward-looking output balances are only marginally above zero. Export order balances for the next three months have strengthened marginally and remain positive, which is more encouraging as this is where the strength continues to lie in the world economy, particularly beyond Europe.
Manufacturing outlook revised down for 2013
Our forecasts for manufacturing have been revised down for 2013. Output is expected to expand by 0.7% next year, compared with a contraction of 1.2% in 2012. The corresponding figures for GDP are -0.1% in 2012 and 1.2% in 2013. Some parts of manufacturing are set to deliver stronger growth next year; particuarly other transport, motor vehciles and mechanical equipment.