As regular readers will know we published our 2017q3 Manufacturing Outlook report, in partnership with BDO, earlier this month. The report’s findings were positive and then some. But we don’t just rely on surveys to inform our views about the sector; last night I was fortunate enough to meet a diverse group of pretty busy manufacturers in the flesh in Leeds. To add a bit of colour to our recent statistics analyses, here are some things I learned….
While companies around the table were in good spirits about the demand outlook for their respective businesses (survey results from Yorks & Humber below), with many seeing the fruits of a stronger world economy, it was clear that it’s not easy being busy…
Uncertainty – the regular kind
I say uncertainty, you think Brexit. Not so the manufacturers battling with fluctuations in commodity prices.
Let’s start with steel.
Recently, most often followed by the word crisis. Last night, a number of manufacturers were signalling their own issues grappling with prices increases and supply constraints. Clear preferences for UK sourcing of steel were expressed, but that isn’t happening to the extent companies would like at the moment with global demand on the up. Then there’s price increases (sometimes on top of currency effects), with pass-through to customers not a given for all companies.
Firms continue to track much is this back to unresolved over-capacity and the thorny issue of Chinese supply. While creative solutions to this are in the making, there were expectations of further increases and more challenges to come.
And onto oil.
In 2015 and 2016H1 the low oil price was the source of a fair bit of weakness in manufacturing activity. While the overall drag on growth has subsided, supply chain capacity is still finding its level as it adjusts to the reality of oil at circa $50 per barrel. Some manufacturers are still digging in, diversifying into new markets and working hard to ensure they hold on to vital skills in the face of growing competition.
Where are the skills?
Busy factories need people. The right people. And these are scarce – as we know. This is such a central topic of discussion when we meet businesses, the lack of real signs of light at the end of the tunnel is becoming a source of real frustration.
And it’s leading to some serious pay increases for some occupations. While some skill sets can demand hefty pay rises, there wasn’t any evidence to suggest that major across the board pay increases are the norm – or about to be. This leaves me struggling to solve the wage puzzle.
Someone from the recruitment sector did try to offer some cheer, noting activity from STEM graduates seeking positions in industry and more of these being female. Here’s hoping this is a sign of things to come!
Interest rates ..what if?
As debate inevitably moved to the policy response, manufacturers are again talking about action from the Bank of England. My sense is that an imminent rise in Bank Rate is not the biggest policy challenge facing the sector, which companies mostly concurred with. I was cautioned not to be too relaxed about an increase in borrowing costs and it’s clear companies are taking MPC statements of gradual rises at face value.
I’ve focused here on some of the challenges that are arising from a general improvement in trading conditions. But the best bits for me are always some of the cracking (but commercially sensitive) innovations that are business as usual for manufacturers but great examples of the agility of the sector.
And if it ever comes up in a local pub quiz, the second biggest market for radiators in Europe, is Turkey!