Manufacturing orders have fallen for the first time in fifteen months, according to the CBI’s quarterly industrial trends survey published last Thursday.
Export orders and employment fell at the fastest rate for fifteen months, while the high prices of oil, metal and other raw materials have caused the growth in manufacturing costs to hit a nine-year high.
The unexpectedly poor results of the past three months have also caused the sector’s confidence to deteriorate at the fastest rate for almost two years.
31% of firms saw orders fall over the past quarter and 27% saw them rise. Although modest, the balance of minus 4% marks the first fall in orders since October 2003 and compares with plus 4% in the previous survey, plus 2% in July 2004 and plus 18% in April 2004.
Export orders fell over the past three months despite expectations of an increase. 29% of firms saw export orders fall and 21% saw them rise. The balance of minus 8% compares with a flat result in the previous survey, minus 3% in July and plus 3% in April.
Looking ahead, firms expect the slide in total orders to halt over the coming quarter, with an anticipated balance of plus 6%. The outlook for overseas demand is less positive, with a further slight decline in export orders expected.
Costs per unit of output rose over the past three months at the fastest rate since October 1995. This survey’s balance of plus 23% compares with plus 14% in the previous survey.
Average domestic prices also increased at the fastest rate since July 1995. This survey’s balance of plus 11% compares with minus 5% in October 2004. But while prices increased in the intermediate and capital goods sectors (firms that sell goods to other businesses), prices fell slightly among consumer goods industries.
Employment fell over the past quarter at the fastest rate since October 2003. The balance of minus 16% compares with minus 4% in the previous survey. Further job cuts are expected over the coming quarter.
Confidence fell for the second consecutive quarter and at the sharpest rate since April 2003. The balance of minus 22% compares with minus 10% in October and reverses the trend of improving optimism seen in the first half of 2004.
Output was broadly flat over the past three months despite expectations of a reasonably strong increase. The balance of plus 2% is the lowest output balance for 15 months and compares with plus 6% in the previous survey. Companies now expect output to increase over the coming quarter.
Stocks fell over the past quarter despite weaker than expected demand. This suggests that firms are running finely balanced stock policies to keep down costs.
Manufacturers plan to cut investment in buildings, plant and machinery but spending on training is set to increase. Uncertainty about demand and inadequate returns are the most significant factors limiting investment, each cited by just under half of respondents.
Ian McCafferty, CBI Chief Economic Adviser, said: “Firms have experienced a disappointing three months. Manufacturing demand has weakened at home and abroad, with exports hampered by the recent weakening of the dollar. Companies expect little by way of significant improvement in the months ahead. Meanwhile, input costs are rising at the fastest rate for nine years. Firms are only able to pass on a fraction of these cost increases through raising prices, so profit margins remain under intense pressure.”
The Quarterly Industrial Trends survey was carried out between 13 December 2004 and 12 January 2005 and 736 manufacturers responded. During the survey period, sterling averaged 1.43 Euros (DM2.80) and $1.91 compared with 1.46 Euros (DM2.85) and $1.80 in the October 2004 survey.