Manufacturing Outlook - how does 2013q2 look?

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EEF's quarterly Manufacturing Outlook report, in partnership with BDO, reports on the latest state of the industry. And in our latest report, published today, indicators across the survey have taken a turn for the better.

Output balance highest for a year

The balance of companies (% reporting output up minus % reporting output down) with rising output levels over the past three months increased to the highest level for a year. This was a turnaround from the downward drift in output balances seen over the previous three quarters, but in line with the positive forward looking responses we saw last quarter.

% balance of change in output in past three months

Source: EEF Business Trends Survey

But orders lagging expectations

Orders balances also returned to positive territory, but the bounce fell short of last quarter's predictions. In 2013q1 manufacturers were optimistic about prospects for export orders following a decline in the preceding three months. This weakness had been driven by ongoing challenges in European markets. However, our survey shows that export sales are taking longer to come through than hoped. Anecdotal feedback has generally been positive as companies are looking at opportunities in new overseas markets, but in some cases success is taking longer than anticipated or new orders have been delayed. There are still signs of confidence that sales in both export and the domestic market will improve going into the second half of the year.

% balance of change in orders

Source: EEF Business Trends Survey

Employment up, investment down

Since the end of the 2008/9 recession there has been a positive run of survey data on both employment and investment intentions across manufacturing. Both series have been consistently stronger than the long run average. The official statistics for manufacturing workforce numbers have tallied with our survey, increasing through 2012. However, positive investment intentions - when defied the weaker output responses in recent quarters - have not shown that plans to invest have translated into higher levels of business investment.

Over the past three months recruitment activity was reported across all firm sizes and a balance of 14% of manufacturers expects to increase headcount in the next quarter. In contrast investment balances have edged down to their lowest level since 2010q2. The drop in balances was particularly notable amongst larger companies in our sample. This is a potential area of concern if we see this trend persist in the coming quarters.

% balance of change in investment and employment in past three months

Source: EEF Business Trends Survey

Access to finance is still likely to be a factor in the weak business investment growth we've seen. EEF's latest Credit Conditions Survey showed a rise in the proportion of companies saying they did not need to borrow. This was despite firms seeing an improvement in the overall cost of credit.

Positive expectations hold firm but growth forecasts nudged down again

Our survey posted positive balances on forward looking questions. A balance of 23% of companies expects output to rise in the next quarter, with all sectors except basic metals upbeat about the 2013q3.

However, our forecasts have been nudged down as the first quarter index of production statistics came in weaker than expected. Manufacturing should contract by 0.5% in 2013, with growth resuming in 2014.

% annual change in output

Source: EEF

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Chief Economist

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