Manufacturing employment forecasts

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Today's labour market figures showed an improvement. The ILO unemployment rate fell to 7.7% and it is now 0.4 percentage points down from the same point a year ago. In manufacturing, the number of jobs was up 0.4% in Q2.

Much of this improvement in the labour market came at a time when output levels in the broader economy were shaky at best. The same is true for manufacturing; although output fell 1.7% in 2012, the number of jobs in the sector rose for the first time since 1998.

Now the economy seems to be doing better, so what does that mean for jobs?

The answer is far from straightforward. Part of it depends on why companies were taking on employees when output growth was weak. For example, some manufacturers took on new employees as an alternative to investing. As I said in a blog last December:

The weak demand environment will be impacting some manufacturers' decisions ... companies that want to increase production may choose to hire new employees instead of investing in capital equipment. This may go some way to explaining recent falls in productivity in the sector.

If companies were taking on employees as an alternative to investment when demand was uncertain, an improvement in the economic outlook does not necessarily imply that employment will increase.

In our latest Business Trends survey we saw that manufacturers were expecting recent increases in demand to continue and while, on balance, they did still intend to make new hires, what really stood out in this quarter's survey were investment intentions, which hit their second-highest level in our survey's history.

This may signal an imminent shift towards a greater reliance on capital over labour when it comes to increasing capacity, which is a return to the long-term trend in manufacturing. As a result, we expect employment in manufacturing to fall very slightly this year. That said, in some sectors strong demand is likely to mean that companies do increase employment:

  • Motor vehicles is a notable example, we expect employment to grow 5.8% this year linked to continued growth, and new product launches that are planned in the next couple of years.
  • We are also forecasting increases in employment in the other transport sector (mainly aerospace) and electrical equipment (which includes power generation equipment). Both of these sectors have strong outlook for demand especially looking to 2014.
  • The non-metallic minerals sector – which includes construction products – was badly hit be the recession, however, employment in the sector is now likely to benefit from growth in house-building linked to the government's Help to Buy scheme.

Overall, then, while manufacturing employment overall remains likely to fall a little, as companies focus on investment and productivity gains, strength in some manufacturing sectors means this fall is likely to be smaller than we have seen in the past.


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