Hopes for an end to the manufacturing recession were given a boost this week as government statistics showed engineering turnover rose 0.3% in the quarter to June compared with the first three months of the year.
Overall turnover was up 3% on the corresponding period of 1998. The best-performing sector was electrical and optical equipment, rising 6.7%. The worst was machinery, down 4.6%.
But new orders were relatively flat, up just 0.2% across all engineering sectors over the year.
David Larcombe, engineering analyst at Albert E Sharp Securities, said recovery was still uncertain. `Things are definitely better, but the actual numbers are not as good as some commentators are suggesting. Look at how many engineering companies are going bust or are up for sale.’
Output across manufacturing rose 0.4% in the second quarter, while oil and gas extraction was up 1.7%.
According to a survey published this week by the Confederation of British Industry, small and medium-sized manufacturers are beginning to see the end of the recession but still face falling orders and profits. The survey found 19% of smaller manufacturers were more optimistic about the future, with 21% less optimistic. The balance of -2% compares with -8% in April and -53% in October 1998.
Prices of manufactured goods are still under pressure, according to the CBI’s Sudhir Junankar. `Although smaller manufacturers are less pessimistic than they have been for two years – hardly cause for celebration – demand and output remain weak,’ he said. `With subdued inflationary pressures across the economy and intense downward pressure on prices, it would give the wrong signal if the downward trend in interest rates was reversed.’
Smaller manufacturers expect profits to continue falling over the next quarter, but at a slower pace. One pressure on margins is likely to come from raw materials prices, which leapt 3.3% in July, largely due to an increase in crude oil prices.
According to Larcombe, the increase will test the recovery. `If engineering firms can pass the price rises on, that will be a good sign. If not, they are in trouble,’ he said.