Manufacturing jobs suffer as demand increases

A survey by the CBI has revealed that despite a long-awaited upturn in demand for manufacturing output, manufacturing jobs have fallen by approximately 34,000 in the last three months.



The quarterly survey of industrial trends suggests that manufacturing output has moved onto a more stable footing, with demand edging up after five quarters of decline and expectations for future orders the most positive for two years.



But manufacturers continue to face cost rises, forcing more to make job cuts in an attempt to relieve the squeeze on profits. According to the survey, manufacturing jobs fell by an estimated 34,000 in the last three months, 9,000 more than in the previous quarter, bringing the total lost over the past 12 months to 122,000.



The rise in costs continues, with 19 per cent more firms saying costs had gone up this quarter. This was only marginally lower than the peak of 23 per cent three months ago. Meanwhile manufacturing output prices remain broadly unchanged.



Demand has improved slightly over the quarter. An overall balance of four per cent of firms reporting an increase in total new orders contrasts with declines in each of the previous five quarters, including a modest fall (down eight per cent) over the three months to January.



This turnaround has been driven by strong growth in domestic demand for capital goods, the first for two years, and a slower decline in the demand for ‘intermediate’ goods, such as chemicals and building materials. Demand for consumer goods has continued to decline, at the same pace seen in the previous survey.



Overall, further improvement is anticipated, with a balance of nine per cent of firms predicting an increase. If achieved this would mark the best outcome since April 2004.



Manufacturing output has stabilised in the last quarter. A balance of two per cent is the first positive figure since January last year. The quantity of companies expecting output to increase over the next three months (12 per cent) is the highest since October 2004 (14 per cent).



Only seven per cent now say their stock levels are ‘more than adequate’ to meet future demand, below the long-term average of 14 per cent.



The balance of firms planning to invest in plant and machinery over the next twelve months (down nine per cent) is still negative, but less so than at any time since April 2004 (down one per cent).



Increasing efficiency remains by far the most important driver for planned investment (71 per cent). 32 per cent cite capacity expansion as a reason to invest, a small recovery from January’s recent low (27 per cent).



This reflects the fact that fewer firms are working below capacity than was the case last quarter. This month’s figure of 56 per cent is just below the long-term average (58 per cent) and down from 62 per cent in January.



The attitude towards export prospects for the coming year is up three per cent. This is the first improvement in export optimism since July 2004 (three per cent).



Political and economic conditions abroad were also cited as a factor likely to limit export orders by the lowest percentage of firms (13 per cent) since October 2000 (11 per cent).



Roughly as many firms feel more as less optimistic about the general business, a balance of -2 per cent.
Ian McCafferty, CBI Chief Economic Adviser said, “There are glimmers of hope on the horizon for manufacturers who have endured a long-lasting downturn. But at a time when commodity and energy prices continue to rise unabated, UK manufacturing is not out of the woods yet.



“In recent weeks, the price of both oil and metals has hit record highs. In the face of these unprecedented costs, manufacturers have continued to make job cuts and focus any new investment on improving efficiency in a bid to rescue profit margins.



“But demand is rising slowly and manufacturers are raising their output in response, helped by more benign US currency conditions and better economic news from the Eurozone countries. Added to which, the first signs of an upturn in UK demand for investment goods, albeit from a low base. All eyes will now focus on domestic demand, which still has to show that it has turned the corner.”