Costs take gloss off orders

Posted on 27 Apr 2010 by The Manufacturer

Orders are picking up both at home and abroad, according to the Confederation of British Industry’s latest Industrial Trends Survey, but profits are threatened by cost pressures.

For the three months to April, 34% of 439 UK manufacturers said total orders rose, while 23% said they fell. A rounded balance of +12% is the first growth in this area since January 2008. Exports are leading this resurgence with a balance of +20% – the best since 1995 – although a balance of +5% for domestic orders means this finally appears to be picking up too. It’s the first growth balance for home orders since October 2007.
However, average unit costs were up for +20 per cent of companies, putting a strain on the bottom line and manufacturers report that they will raise their prices over the next three months to as a result

“Manufacturing appears to be on an upward trend,” said the CBI’s chief economic adviser Ian McCafferty. “After eight consecutive quarters of falling domestic orders, home-grown demand is slowly starting to recover.”

He pointed to the weakness of Sterling and the ongoing recovery of the global economy for the increase in exports and said that with many firms now having completed destocking periods, demand should only increase over the coming quarter.

“Given the improving picture, manufacturers are feeling more optimistic about the business situation,” he added. “However, sharply rising raw material prices are pushing up costs, and firms plan to raise prices over the next three months to alleviate some of the squeeze to profit margins.”

A balance of +20% is expected for orders between April and July and a balance of +14% expect to up production.

Employment is still falling (-12%) and the trend is expected to continue at a similar rate during next quarter.

Sixty two per cent of firms are working below capacity.