Tough times for manufacturing

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Over the past quarter, manufacturers have seen some of the toughest trading conditions since the end of the recession, according to a major survey released today by EEF, the manufacturers’ organisation and business advisers BDO LLP.

Yorkshire and Humber manufacturers had anticipated some softening in output this quarter, but the survey showed a more marked weakening than expected across a range of indicators. The UK balance of responses on output over the past three months fell to its lowest level since Q4 2009.

Key Yorkshire and Humber findings:

Output and order balances came in lower than expected in the third quarter of 2012. A balance of 14% and 24% of manufacturers’ reported output and orders had decreased, down from 32% and 38% last quarter.

Manufacturers’ margins came under growing pressure over the past three months with a balance of 19% reporting a deterioration in export margins and 24% seeing a further squeeze on margins on UK sales.

The balance of responses on investment intentions remains positive, but at 5% down on the previous quarter.

Recruitment intentions remained positive, continuing the trend seen since the beginning of 2010, with a balance of 17% of companies in Yorkshire indicating they increased their employment. This was greatest amongst small firms.

Looking forward, output expectations for the next three months fall further. A balance of just 4% and 0% of manufacturers expect output and orders to grow in the next three months.

Following the sharp contraction in manufacturing output in the first half of this year, EEF forecasts have again been revised down. A contraction of 1.5% is now expected in 2012, with the sector regaining some ground with the growth of 1.5% in 2013. The corresponding figures for GDP are -0.2% and 1.4%.

Commenting, Andy Tuscher, Regional Director of EEF, the manufacturers’ organisation said:

“The weaker global outlook precipitated by the on-going economic challenges in Europe has clearly hit home in our latest survey. Pockets of growth still remain in some sectors, but overall confidence appears to be draining away. The sharp drop in export balances over the past quarter is a particular concern given their importance to manufacturers and also our economy’s reliance on exports as a source of growth.

“However, some positive news can be taken from the continuing commitment to invest across manufacturing, as companies look to their competitiveness and market opportunities in the medium term.

“Unfortunately, the risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can’t be ruled out.”

Jason Whitworth, manufacturing partner BDO in Yorkshire, said:

“The results of the survey paint a dark picture with weakening markets across the board. Inevitably Europe continues to serve as a drag on exports and even the previously buoyant emerging markets are beginning to falter. With this extremely testing global backdrop it is crucial that manufacturers remain not only lean but also nimble enough to respond to future opportunities as and when they arise. This is something that the sector has not been good at in previous recessions.

“However, it is not all bad news. Larger companies in the region that have the ability to invest are continuing to do so and smaller companies are wary of not suffering a skill shortage by ensuring that they employ the best talent. All of this in the face of worsening market conditions. This indicates that manufacturers have learnt the mistakes of the past are investing for the long term and are preparing themselves for an upturn in the market, whenever and wherever this may occur.”