It is more of the same in UK labour market conditions this month. Not for manufacturing. We have eight interesting stories to tell about employment and wage growth across the sector.
1. Manufacturing workforce increased in the first three months of 2017
The manufacturing sector added 9,000 jobs to the UK economy in the first quarter of this year. This more than offset the drop in the manufacturing workforce in the previous quarter, which fell by 7,000 in the three months to December 2016.
2. Most of new jobs created in the West Midlands
Manufacturers in the West Midlands reported the largest increases in headcount, with 7,000 new jobs in the three months between January and March. This is likely driven by the predominant automotive and mechanical industries, which recorded a surge in performance at the start of the year.
By contrast, the East of England recorded the largest drop in manufacturing workforce, which contracted by 4,000 in the first quarter.
3. This confirms earlier upbeat survey evidence which suggested an increase in manufacturing workforce
Earlier this year, manufacturers’ recruitment activity looked set to hold up with 36% of firms planning for increases in permanent employee numbers in the next 12 months according to our Executive survey. Yet for nearly all the expectation was for moderate growth.
Our latest Manufacturing Outlook showed that recruitment activity firmed up further in the second quarter of 2017, with employment balances climbing to their highest levels in three years.
4. Why are companies taking on new staff?
Manufacturing enjoys a surge in performance since the second half of last year. Growth has been driven by buoyant demand conditions domestically, along with an upswing in global markets. As surprises continue to be on the upside, this is prompting manufacturers to take on new staff to fulfil demand requirements.
This was apparent in our Executive survey earlier this year. The results indicated that seven in ten companies expecting increases in workforce say this is due to the need to increase capacity. But skills also ranked high in manufacturers’ recruitment needs, with the increase in the number of apprenticeships and the need to bring new skills being a reason to increase headcount.
5. Is the recovery in employment set to continue?
Our latest Manufacturing Outlook showed employment expectations for the next three months were easing, albeit still anchored in positive territory. This suggests the increase in manufacturing headcount is likely to moderate in the next quarter.
6. Pay growth also ticking up across manufacturing
Our latest Pay Bulletin showed that the average pay settlement across manufacturing picked up to 2.3% in the three months to the end of May. The month of April alone, the second most important bargaining month for manufacturers, was revised upward to 2.5% from a previously estimated figure of 2.2%.
7. What explains the pickup in manufacturing pay?
Manufacturing companies are facing a number of factors having an upward pull on pay growth:
The rise in inflation
Inflation soared to 2.9% in May after it overshoot the Bank of England’s 2% target in February. The latest data from EEF show that six in ten manufacturing employees have been granted a pay increase at or above 2% in the three months to the end of May, and one in four have had a pay increase at or above 3% − ahead of the inflation rate.
The increase in the NLW
April saw the National Living Wage rising by 4% from £7.20 to £7.50 an hour for 25-year-old workers. This is likely to have provided a boost to pay figures in April, although the impact is rather modest. Only 5% of settlements resulted in a pay rise at or above 4% in April and this applied to one in twenty employees in manufacturing.
EEF’s Manufacturing Outlook continued to indicate a surge in performance for manufacturers on the back of a synchronised upswing in global markets. In order to meet busy order books, the need to increase productivity is prompting manufacturers to offer higher pay levels.
8. How could this affect manufacturers?
Manufacturers’ profit margins are in a recovery mode. The rise in input costs has now passed its peak – input price inflation came in at 11.6% in the year to April down from January’s 19.9%. And the increase in consumer price inflation means that a large part of the sterling depreciation has been passed through to customers.
While easing margin pressures mean that the sector is in a better shape to offer higher pay levels, a second-round pull on input costs is not to be excluded.