Norges Bank

Regional network report

Regional network 5/2005

Interview period: October and November 2005

Summary

Demand, output and market outlook

All industries report growth in demand and output during the period. Growth has been particularly strong for suppliers to the oil industry. The export industry also reports solid growth and a considerably higher growth rate in the last three months. Manufacturing companies that are supplying goods to the business sector and in particular to the construction market report solid growth. The picture is somewhat more varied in the food industry. Some segments (breweries, meat production, fish feed) report solid growth while other segments (parts of the dairy industry, potato industry) are struggling. Manufacturers of electrical household articles and white goods report weak growth, which may be due to intense competition from abroad. The same applies to the textile industry. On the other hand, manufacturing companies supplying goods to the maritime sector and to the fish farming industry report solid growth. Within the export industry there are reports of strong growth for the shipbuilding industry, ship equipment industry, furniture industry (niche products), fisheries and fish farming. As in the previous round, the signals from the processing industry are somewhat mixed due in part to high energy prices. On the other hand, suppliers to the oil industry have experienced the strongest growth of all industries in this round. This is a result of high oil prices and record-high investment in the petroleum sector. Building and construction report solid and somewhat stronger growth than in the previous period. This is especially true for construction and non-residential buildings, but also for parts of the residential market in central areas (e.g. in Trondheim). In service industries, overall growth is somewhat higher than in the previous round due to higher growth in corporate services. In retail trade, growth is lower than in the previous round.

The market outlook is positive and approximately in line with the market outlook in the previous round. Overall, growth is expected to be somewhat weaker during the next six months than what we have seen in the last three months.

Capacity utilisation and investment plans

Just under 43% of our contacts report that they would have some or considerable difficulties accommodating an increase in demand. Building and construction and some manufacturing sectors (oil-related) have capacity problems, and compared with the previous round we see that considerably more companies report that they would have substantial difficulties accommodating growth in demand. All industries report plans for moderate to solid growth in investment. Manufacturing and the local government and hospital sectors are expecting the strongest growth. Retail trade expects somewhat lower investment growth compared with the previous round.

Employment and labour market

Employment is increasing at roughly the same pace as in the previous round, with moderate growth in most sectors. Employment growth is highest in building and construction, whereas the public sector reports zero growth, as in the previous round. In manufacturing, employment growth has changed from zero growth in the previous period to moderate growth in this round. In the next three months, growth is generally expected to remain unchanged in all sectors except manufacturing, which is expecting zero growth. There are, however, regional variations in the employment pattern. In the North-West and South-West, there has been solid growth in employment during the last three months, and this solid growth is expected to continue during the next half year in the North-West. A large portion of the solid employment growth in Western Norway may be ascribed to the high oil-related activity. Nearly 28% of the contacts report that the labour supply will impose a constraint on activity if demand increases. This is somewhat higher than in the previous round. There is a shortage of qualified labour in particular in building and construction and petroleum-related manufacturing.

Costs, prices and profitability

Annual wage growth is fairly stable at about 3.5%, which is generally the same as in the previous round. Wages pressures seem to be strongest in building and construction.

There has been a slight upward adjustment in the year-on-year rise in selling prices in manufacturing (both domestically oriented and export oriented) in this reporting round compared with the previous round. In retail trade, the rise in prices has been adjusted downwards to a slightly negative rise in this round. In building and construction, prices have risen at the same pace as in the previous round, but this sector has experienced the highest rise in prices. In service industries, the rise in prices has decelerated compared with the previous reporting round. 26% of the contacts expect prices to rise at a faster pace in the next 12 months. This is an increase of 5 percentage points since the previous round. Approximately the same number of contacts expects prices to rise at a faster pace as those that expect prices to rise at a slower pace during the next 12 months. Manufacturing and building and construction expect a slower rise in prices, while retail trade and service industries expect a marginally brisker rise in prices during the next 12 months.

Profitability is still improving in the entire private sector. Increased activity and a rise in selling prices are contributing to somewhat greater profitability improvement in domestically oriented manufacturing and building and construction. Profitability improvements are still greatest in the offshore industry but not as great as in the previous reporting round.

Region South-West

  • The cyclical upturn is continuing. The pattern of growth is somewhat more mixed, however, than in the previous round. Growth is picking up in the export industry, domestically oriented manufacturing and suppliers to the petroleum sector. In building and construction, the activity level is still growing but at a slower pace. Growth is also slowing in service industries. There is zero growth in retail trade, as it is represented in our contact network.
  • The market outlook for the next six months is positive for all sectors. Non-petroleum based manufacturing and service industries have the highest expectations for growth. Expectations are somewhat lower in other industries. The petroleum industry, which has experienced a strong upswing, expects continued albeit lower growth than earlier. In building and construction, where the activity level is also high, we can register that growth expectations have declined further, in line with the trend. Retail trade expects some growth in the next six months.
  • Investment is rising in manufacturing, service industries and the local government and hospital sectors. The exception is retail trade, where the investment level has been high for a long time.
  • The labour market is still growing. Employment is rising in all sectors except the local government and hospital sectors. Manufacturing employment is clearly on the rise. Building and construction are increasing employment in a situation where capacity utilisation is high.
  • However, the number of companies that report considerable capacity problems and problems accommodating an increase in demand has not increased. This may be related to increasing investment. The share of enterprises reporting that the supply of well-qualified labour may represent a constraint on future growth is roughly the same as in the previous round.
  • Annual wage growth for 2005 is between 3% and 3.5% in most sectors. Wage growth is highest in secondary industries, indicating that wage pressures are rising in this part of the labour market.
  • All industries, except retail trade, report a 3%-4% increase in prices.
  • Developments in profitability are solid in manufacturing and building and construction but moderate in service industries.

 Region South

  • All industries report that demand and output are growing at approximately the same pace as in the previous round. Domestically oriented manufacturing, including the publishing and printing industry, a porcelain manufacturer and food manufacturers, reports solid growth, as in the previous round. The maritime industry and suppliers to the oil industry report full capacity utilisation and solid market growth. The export industry reports solid growth now compared with moderate growth in the previous round. The processing, technology and engineering industries report solid growth. In building and construction, retail trade and service industries, growth is still positive.
  • The market outlook is positive for all industries. In general, the current growth is expected to continue through the next six months.
  • It appears that idle capacity in the business sector is declining at a steady pace. Most companies in the building and construction sector are producing at or above capacity limits. 80% of the companies report that they would have some or considerable difficulty accommodating an increase in demand. A shortage of skilled labour is the bottleneck. The corresponding share among manufacturing companies is 40%. In this round, the maritime, engineering and processing industries report capacity problems which are related to a shortage of skilled labour and plant constraints.
  • Investment is rising in all industries. As in the previous round, manufacturing and retail trade report solid growth in investment, whereas investment is moderate in service industries. In this round there was solid growth in investment in the local government and hospital sectors, following a period of stable growth since the autumn of 2004.
  • Building and construction in particular reported solid employment growth in this round. In addition, retail trade recorded a moderate increase in employment. The number of person-years in the local government and hospital sectors is still relatively stable. Developments in the next three months are expected to be very similar to those we have seen in this period. However, service industries, where employment has been stable during the last three months, are expected to record moderate growth in employment in the period ahead.
  • Annual wage growth is estimated at 4.0% in manufacturing and in service industries. The estimates for building and construction and retail trade are 5% and 3% respectively. Contacts in the local government and hospital sectors estimate annual wage growth at 3.5% in 2005.
  • Selling prices during the last 12 months show an increase in all industries except retail trade and corporate services, where selling prices are stable. 61% of our contacts expect prices to rise at the same pace during the next 12 months. A somewhat larger number of contacts expect prices to rise at a slower pace than at a higher pace during the next 12 months.
  • All industries report solid profitability growth. There are no industries that stand out in particular in this round. Profitability is being driven by higher volumes and, for many industries, higher prices. In addition, some enterprises are engaged in rationalisation.

 Region East

  • Our contacts in the region report that demand and output growth are still solid. The growth rate is higher than in the previous round due to higher growth in the export industry and corporate services. The growth rate is expected to be approximately the same in the period ahead.
  • In domestically oriented manufacturing, there was solid growth in demand and output during the period. Suppliers to building and construction report moderate to solid growth, which is somewhat lower growth than earlier this year. In the export industry, the growth rate is stronger than in the previous round due to stronger growth in the technology industry.
  • Growth in building and construction is solid and on a par with growth during the previous round. Growth in non-residential building and construction is increasing, whereas growth in residential construction is moderate.
  • Growth in retail trade is still solid. As in the previous round, the building materials sector reports the strongest growth. Growth in clothing retailing is moderate and somewhat weaker than in the previous round. Car sales are still flat, as they have been the entire year.
  • In the service sector, overall growth is somewhat higher than in the previous round due to higher growth in corporate services. Growth is strongest in the consulting, recruitment, banking/finance and architecture industries, and these industries also have the highest expectations about future growth.
  • There is moderate pressure on factors of production. Approximately 30% of the companies will have problems accommodating unexpected growth in demand. As before, the building and construction sector has the least idle capacity and the supply of labour is imposing a constraint.
  • All industries except retail trade report a moderate increase in investment. Investment growth appears to be somewhat higher than in the previous round, pushed up by higher investment in the local government and hospital sectors.
  • Employment has risen somewhat more during the last three months than earlier this year, especially in building and construction, retail trade and service industries. Building and construction and service industries are the only sectors with plans to increase employment in the period ahead.
  • Selling prices have increased moderately during the last 12 months. On the whole, prices are rising at a somewhat faster pace than in the previous round as a result of a somewhat faster rise in prices in the export industry. Roughly 40% of the companies expect prices to rise at a faster pace in the period ahead, whereas the same number of companies expects prices to remain unchanged as those that expect prices to rise at a slower pace. The share that expects prices to rise at a faster pace is higher than in the previous round.
  • Profitability is still improving in the entire private sector. Less than 10% of the companies report lower profitability during the period.

 Region North-West

  • On the whole, there has been solid growth in demand in Region North-West during the period. The region's export industry is still experiencing a boom in most markets, with strong overall growth. Building and construction and suppliers to the oil industry have also experienced strong growth in this quarter, whereas retail trade reports zero growth. Growth has been solid in both domestically oriented manufacturing and service industries.
  • The overall market outlook for the next six months is relatively favourable. Building and construction and suppliers to the oil industry are expecting the same strong growth in the period ahead. The export industry has somewhat lower expectations but is still expecting solid growth during the next six months. Domestically oriented manufacturing and retail trade are expecting moderate growth during the next half year, whereas service industries are expecting solid growth.
  • 37% of the companies, fewer than in the previous round, report that they would have had problems accommodating growth in demand. At the same time, employment growth has generally remained at the same level as in the previous round. This may indicate that a number of companies have succeeded in achieving productivity gains during the period. As before, building and construction have the most serious capacity problems.
  • All sectors except the local government sector report plans to moderately increase investment in the next six month period. Local government reports that they plan to increase investment considerably.
  • Annual wage growth in 2005 is estimated at between 3% and 3.5%, if local government is excluded. Annual wage growth in the municipalities selected is nearly 1 percentage point higher.
  • On the whole, price increases are moderate and are expected to continue at the same pace next year. In the export industry, the rise in prices is levelling off compared with the previous reporting round, but is still solid. There has been a moderate decline in retail trade prices, and a similar price fall is expected again next year.
  • Profitability is fairly stable in most sectors, with the exception of retail trade, where profitability has declined. This decline is a result of intensified competition and a drop in sales. Profitability growth is still solid in the offshore industry.

 Region North

  • Demand and output growth have continued in all sectors of Region North in this round. The export industry reports moderate growth, as in the previous round, and expects strong growth in the next six months.
  • Domestically oriented manufacturing reports solid growth, as in the previous round, and expects growth to be solid during the next six months.
  • Building and construction report solid growth and that they expect zero growth during the next six months. Retail trade reports solid growth and expects the growth rate to remain unchanged during the next six months.
  • Growth in demand for corporate services is solid and at the same level as in the previous round. Growth in demand for household services has slowed since the previous round and is currently moderate. Growth in demand for services is expected to be solid during the next 6 months.
  • Manufacturing is expecting strong growth in investment. Retail trade and the local government and hospital sectors are expecting solid growth in investment. Service industries are expecting continued moderate growth in investment.
  • Manufacturing, retail trade, the municipal and hospital sectors and building and construction report that employment is stable and that they expect employment to remain stable for the next three-month period. Service industries report solid growth in employment and expect this growth to continue during the next three-month period. On the whole, the supply of qualified labour is good.
  • Domestically oriented manufacturing and the export industry report a sharp rise in prices over the last 12 months. Building and construction as well as the other sectors report a moderate rise in prices. Expectations concerning future price developments vary considerably.
  • Domestically oriented manufacturing and retail trade report solid growth in profitability. The export industry, building and construction and service industries report moderate profitability growth.

 Region Central Norway

  • There is moderate to solid growth in all industries. Growth is strongest among suppliers to the oil industry and manufacturing companies supplying goods to the building and construction industry.
  • Growth is still solid in building and construction. In retail trade and household services, growth is moderate and lower than at this time last year. Growth in corporate services is solid.
  • Manufacturing does not expect any growth in the period ahead. Suppliers to the oil industry, which are still expecting strong growth, are the exception. The building and construction sector also expects that growth will come to a halt. Retail trade is expecting continued weak growth. Service industries expect solid growth which will be strongest in the area of corporate services.
  • Employment is rising steadily and the number of new job vacancies is increasing. Retail trade and service industries expect to increase their workforce in the period ahead, whereas manufacturing and building and construction currently have plans to reduce the number of employees.
  • There is less idle capacity now than earlier in the year. Half of the enterprises have difficulties accommodating growth in demand, and 20% are already producing at or above capacity limits. For companies with little excess capacity, labour is the most frequent constraint in service industries and building and construction, whereas other factors in the production process are the most frequent constraints in manufacturing.
  • The investment rate is relatively stable, but the local government and hospital sectors and service industries are signalling an increase.
  • Wage growth is expected to be close to 3.5% in all industries, but a larger number of contacts than before are expecting wage growth to be even higher. This is typically explained by wage pressures in connection with employee recruitment or competition from other companies for existing staff.
  • Prices are rising in all industries with the exception of retail trade and household services. In the building and construction sector, higher costs are pushing up prices.
  • Developments in profitability vary, but for many companies increased volumes are leading to higher profitability. In manufacturing, companies supplying building materials and products to the oil industry report solid growth.

 Region Inland

  • On the whole, there has been growth in demand in Region Inland during the period. Manufacturing growth is somewhat higher than in the previous round, with the export industry pushing up growth. In both retail trade and service industries, growth is somewhat weaker than in the previous round. Growth is still strong in building and construction, especially in connection with residential construction.
  • The market outlook is still relatively favourable for all industries in the region but somewhat less optimistic than in the previous round. A narrow majority of companies are expecting growth in demand.
  • In this round, half of the companies report that they would have had difficulties accommodating expected or unexpected growth in demand. This share is considerably higher than in the two previous rounds. Many companies in the building and construction sector are approaching capacity limits.
  • All industries, with the exception of building and construction, appear to have an adequate supply of labour.
  • The level of investment is increasing somewhat in most companies. Investment growth is picking up in manufacturing, but is somewhat weaker in service industries and the municipal and hospital sectors.
  • Employment is rising in the entire private sector, except retail trade. Employment growth is expected to continue at approximately the same pace in the period ahead as in recent months. Employment growth is still strongest in building and construction. Manufacturing employment appears to be rising somewhat now after a slight decline earlier this autumn.
  • Wage growth is estimated at about 3% in the manufacturing industry and the local government and hospital sectors and somewhat lower for service industries and retail trade. Wage growth in the building and construction sector appears to be increasing somewhat compared with the previous round and is at about 4%.
  • In addition to higher wages, cost increases are dominated by the effects of higher oil and fuel prices. The effects are most pronounced in manufacturing and the transport sector.
  • The rise in prices is still moderate but is picking up in building and construction and slowing down in retail trade. The share of companies that expect prices to rise at a slower pace in the period ahead is roughly the same as the share that expect prices to rise at a faster pace. Expectations of a rise in prices are somewhat stronger than in the previous round and are strongest in building and construction and the export industry.
  • Profitability is stable in most industries. Building and construction are benefiting from higher volumes and rising prices. The changes in other industries are minor.

In autumn 2002, Norges Bank established a regional network of enterprises, organisations and local authorities throughout Norway. More about the regional network

Published 14 December 2005 12:22