Signs of recovery from manufacturing recession – CBI report

Manufacturing News, Source : TheManufacturer.com
Published : 23 Apr 2002 16:15

Manufacturers say business confidence has risen for the first time in more than two years, indicating the first signs of recovery from recession.

But the decline in orders, output and employment continued over the past four months, according to the CBI's Quarterly Industrial Trends Survey, published today.

The CBI believes the turnaround in sentiment is driven by expected improvements in global trading conditions. Firms expect export orders to grow over the next four months for the first time since January last year. Domestic orders are also expected to grow and if achieved, it will be the first increase since January 2000.

If orders increase as expected it could lead to the most significant rise in output since January 2001. However, at this stage, much of the increase in orders and output can be attributed to a turn in the inventory cycle, with firms starting to restock after the sharp destocking seen since the autumn.

Ian McCafferty, CBI Chief Economic Adviser said: "The deepest manufacturing recession for over a decade appears to be on the turn. Expectations of small rises in orders and output have led to manufacturers becoming significantly more optimistic. This is good news but any recovery at this stage will remain fragile. It will be some time before employment stops falling and firms start investing again."

Looking back over the past four months export orders fell again, albeit at a much slower rate. The difference between firms reporting a rise in export orders and those reporting a fall gives a balance of minus 18 per cent, compared to minus 36 per cent in January.

Domestic orders also fell over the past four months, a balance of minus 12 per cent compares with minus 16 per cent in January. As a result, output also fell and strikingly, the number of firms working below capacity increased from 66 per cent in January to 72 per cent, a level not recorded since January 1993.

But while output is expected to pick up, jobs are not. Employment continued to fall at a similar rate as in the January survey. The trend is set to continue over the coming months, adding to the half million manufacturing jobs lost over the past four years.

Firms are cutting prices and costs in order to hang on to customers. Over the past four months prices continued to fall in line with expectations, continuing the squeeze on profits.

With capacity utilisation at very low levels, there is no evidence of an increase in fixed capital spending. However projections for spending on innovation and training have turned positive having been negative since 11 September.

Commenting on the new mood of optimism among manufacturers, Mr McCafferty said: "It is worth noting that the survey period was completed prior to the Budget, which added to employment costs for businesses of all sectors and sizes and regardless of their profitability. We cannot be sure that recorded optimism would have bounced back in this way, had manufacturers known what was in store."

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