Regional network 1/2006
Interview period: January and February 2006
All industries report growth in demand and output during the period. Suppliers to the petroleum industry report particularly strong growth. Domestically-oriented manufacturing in all regions report continued solid growth in demand and output. This growth in demand is due to strong household purchasing power, buoyant activity in building and construction, as well as positive developments in the fishing industry, fish farming and the shipbuilding industry. The export industry reports solid growth overall. The fish farming industry reports strong growth in demand from the EU and Russia. Suppliers of ships'gear and the pharmaceutical industry also report strong growth. There is solid growth in the engineering industry. The ferroalloys industry has reduced production capacity compared with the previous period due to intense competition from China and Russia. Suppliers to the petroleum industry report continued strong growth. This is due to a high level of both investment and exploration activity. Building and construction report continued solid growth. There is increased activity in the areas of new buildings and home refurbishment, private and public non-residential buildings and construction. Growth in corporate services has on the whole been solid during the period. There are variations from one region to another. Region South reports strong growth whereas growth in Region North has been moderate. Household services report solid growth on the whole during the period. Region North is an exception, with moderate growth. Retail trade reports solid growth during the period.
The market outlook is positive. Suppliers to the petroleum industry are expecting solid growth. 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
49% of the companies report that they would have some or considerable problems in accommodating an increase in demand compared with 43% in the previous round. Capacity problems are still most pronounced in building and construction and parts of petroleum-related industry. Compared with the previous round, the share of companies reporting that they would have considerable problems accommodating an increase in demand is approximately the same. Capacity utilisation is highest in Region North-West and lowest in Region Inland.
All industries report moderate to solid growth in investment plans, with the exception of retail trade where investment plans are virtually the same. Manufacturing and the local government and hospital sectors are expecting the strongest growth. In Regions South, North-West, Central Norway and Region North, all industries report an increase in investment.
Employment and labour market
The high activity level has contributed to a moderate increase in overall employment again during the period. Employment growth is expected to remain at about the same level during the next three months. A number of the regions report labour market tightening. Building and construction report the strongest growth, whereas employment growth in the local government and hospital sectors and retail trade has remained virtually unchanged. The positive developments in the private sector are expected to continue during the next three months. Growth in manufacturing employment is expected to show the largest increase compared with the previous round.
34% of the contacts report that labour will impose a constraint on activity if demand increases. This is an increase of 6 percentage points compared with the previous round and confirms labour market tightening. The shortage of skilled labour is still most pronounced in building and construction and petroleum-related industry, although parts of the service sector also report problems recruiting qualified labour. Labour shortages are still most pronounced in Regions North-West and South-West.
Costs, prices and profitability
On average, selling prices have increased moderately during the last 12 months. All sectors report a rise in prices. There has been a moderate increase in selling prices in manufacturing. In the export industry, the rise in prices has been adjusted downwards compared with the previous round of interviews. Building and construction report a solid rise in prices in the last 12 months. Prices have increased most in this sector. Retail trade reports a weak rise in prices overall following reports of a price fall in the previous round. Service industries report a moderate rise in prices on the whole. 24% of the contacts expect prices to rise at a faster pace in the next 12 months. This is a reduction of 2 percentage points since the previous round. 55% expect prices to remain unchanged and 21% expect prices to fall. Domestically-oriented manufacturing is the only sector where a larger number of contacts expect prices to rise at a faster pace.
Some increase in selling prices combined with increased demand is contributing to a solid improvement in profitability for most sectors. In Region South, there is solid to strong growth in profitability in all sectors. The petroleum-related industry stands out again in this round with a very positive improvement in profitability. Retail trade also reports solid profitability growth. Building and construction is the only sector where profitability growth has slowed slightly compared with the previous round.
- The cyclical upturn is continuing. The growth pattern has however, shifted somewhat compared with the previous round of interviews. Building and construction and suppliers to the petroleum industry continue to grow. The rest of the manufacturing sector reports continued growth, but the growth rate has slowed compared with the previous round. In retail trade and service industries, growth has gathered pace.
- The market outlook for the next six months indicates that growth in the various sectors will continue at roughly the same pace. It is worth noting that market expectations in building and construction are more positive now than previously. This may indicate that pressures in the industry are so strong that capacity increases have become a necessity.
- Manufacturing, service industries and the local government sector expect to increase investment, but somewhat less than in the previous round. The exception is retail trade, where our contacts report that they expect investment to decline slightly in the period ahead.
- The labour market is growing in all sectors, and there are no reports of significant reductions in employment.
- The number of companies that report some or considerable capacity problems and problems accommodating an increase in demand has increased compared with the previous round. Capacity problems are particularly visible in building and construction and among suppliers to the petroleum industry.
- As in earlier rounds, there is a general shortage of highly skilled labour, such as engineers.
- Annual wage growth in 2006 is expected to be higher than in 2005. Manufacturing and service industries expect average annual wage growth of 4%, while building and construction expect as much as 5%. The local government sector expects wage growth to be roughly the same as in 2005, i.e. 3.5%.
- The rise in prices has moderated compared with the previous interview round, except in domestically-oriented manufacturing where the average rise in prices is considerable, primarily reflecting price pressures in petroleum-related industries. In addition, the export industry reports lower prices in this round.
- Profitability has improved in all industries, especially in petroleum-related industries.
- Domestically-oriented manufacturing reports continued solid growth. This is the case for suppliers/producers of wood products, the maritime industry, shipyards and the food industry. The export industry, including businesses in the process, engineering and pharmaceutical industries, reports solid growth and a somewhat higher growth rate than in the previous contact round. Suppliers to the petroleum industry report strong growth in the last quarter compared to solid growth in the previous period. The rate of growth is also somewhat higher in building and construction and corporate services, where growth is solid and strong, respectively. The favourable trend reported in the previous round of interviews has continued for retail trade and household services.
- The market outlook is positive and optimism is high. Suppliers to the petroleum industry and building and construction expect strong growth during the next six months. For some commercial services, the outlook is highly favourable. However, there are some manufacturing sectors that are struggling. The textile industry and publishing and graphics industry are still facing substantial challenges in relation to steadily increasing competition from newly industrialised countries and considerable demands to keep up with the latest technological developments.
- Idle capacity in manufacturing is diminishing steadily. Shipyards, suppliers/producers of wood products and the engineering industry report plant capacity problems. Engineering companies are struggling with recruitment of professional and management expertise. All companies in the building and construction sector are producing at or above capacity limits. There is a shortage of engineers and skilled labour in the Norwegian market. Contract labour can remedy the situation for workers with lower formal education, but it is more challenging to find engineers and skilled project managers.
- With solid profitability and a positive market outlook, all business sectors are increasing investment. The export industry reports the strongest growth in investment. Investment growth is moderate in retail trade and solid in service industries and the local government and hospital sectors.
- The share of companies reporting a rise in employment is larger and the share reporting a decline in employment is smaller than in the previous interview round. There is solid growth in employment in manufacturing, especially in the export industry and building and construction. Employment growth is moderate in the service sector. Developments in the next three months are expected to be very similar to those we have seen in this reporting period.
- Annual wage growth is projected to be 4.0% in manufacturing and in service industries. The projections for building and construction and retail trade are 5% and 3% respectively. Contacts in the local government and hospital sectors project annual wage growth to be 3.5% in 2006. Estimated wage growth for the private sector and the local government and hospital sectors is in line with annual wage growth figures reported at the end of 2005.
- All industries report a rise in selling prices during the last year, with the exception of retail trade, where prices have been stable. The export industry reports the sharpest price rise. 79% of our contacts expect prices to rise at the same pace during the next 12 months. The number of contacts expecting prices to rise at a faster pace is somewhat larger than the number expecting prices to rise at a slower pace during the next 12 months.
- All industries report very positive profitability growth. Improved profitability is driven by increased volumes and higher prices. In addition, some enterprises are continuously engaged in rationalisation measures and effective cost control.
- Our contacts in Region East report that demand and output growth are still solid. The growth rate is somewhat higher than in the previous round owing to higher growth in building and construction. The market outlook is positive and the growth rate is expected to remain unchanged in the period ahead.
- Domestically-oriented manufacturing reports solid growth in demand and production during the last period. Suppliers to the building and construction sector have experienced the strongest growth. The growth rate in the export industry is solid, and growth is strongest in the technology industry.
- Growth in building and construction is solid to strong, and higher than in the previous round. The number of housing starts is expected to decline, but solid growth is expected in commercial building and construction.
- Growth in retail trade is still solid. There is solid growth in the building materials sector, furniture and home furnishings and electrical articles. Growth in the clothing industry is moderate.
- Demand for both household and corporate services is high. Growth is strongest in consulting, auditing and advisory services, temporary employment agencies, banking/insurance and telecommunications. These sectors also have the highest expectations of future growth.
- Approximately 40% of companies will have problems in accommodating unexpected demand growth. This is a higher share than previously. The building and construction sector still has the least idle capacity and the supply of labour is a constraint.
- Manufacturing investment is reported to be increasing moderately. The other industries do not expect investment to rise. Investment growth appears to be lower than in the previous round.
- Employment has increased more than in the previous round in building and construction, but less in retail trade. 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 in building and construction. Other industries report unchanged or falling prices. Overall, prices have risen more slowly than in the previous round. Roughly 40% of companies expect prices to rise at a faster pace in the period ahead, 40% expect prices to remain unchanged, and 20% expect prices to rise more slowly. The share expecting a faster rise in prices is the same as in the previous round, but there are fewer that expect a slower rise than in the previous round.
- Throughout the private sector, profitability continues to increase at a somewhat faster pace than in the previous round. Over 80% of contacts report higher profitability during the period.
- The export industry in Region North-West continues to expand, with strong overall growth in the last quarter. Expectations concerning the overall rate of growth in the next six months have been revised downwards to solid growth, although expectations vary across companies. Export companies that are major suppliers to the offshore sector expect a continued boom during the next two to three years. It will be difficult for demand to rise even more. Two of three fish exporters report continued growth, but at a slightly slower pace than previously.
- Activity in building and construction and among suppliers to the petroleum industry has increased sharply in this quarter. Our contacts in building and construction report continued strong growth during the next six months, while suppliers to the petroleum industry expect growth to level off somewhat from a very high level. It appears that the boom in the petroleum industry will continue in 2006.
- On the whole, domestically-oriented manufacturing reported solid growth in the last quarter. Growth is expected to be moderate in the next six months.
- Growth in retail trade has been solid for the past three months and is expected to be somewhat higher in the next six months. Service industries report solid growth in the last quarter. Corporate services report the strongest growth. All industries expect solid growth during the next six months.
- Almost 80% of our contacts report that they would have had considerable problems in accommodating an increase in demand. This is a considerably higher share than in the previous round. At the same time, overall employment growth has been moderate and approximately the same as in the previous round. Major capacity problems are reported by domestically-oriented manufacturing, suppliers to the petroleum industry and building and construction in particular report considerable capacity problems.
- All sectors expect increased investment during the next six months. The public sector (local government) reports substantial investment.
- The average projection for annual wage growth in 2006 is about 3.5% for all sectors.
- Price rises are moderate overall. Corporate services, particularly freight services in offshore companies, report the sharpest rise in prices. The number of companies expecting a higher rise in prices in the next 12 months is larger than in the previous round. This is particularly the case in retail trade, building and construction and service industries.
- Profitability has improved in all sectors. The export industry, the offshore industry and building and construction report the largest gains. Contributing factors in building and construction and the offshore sector are increased volumes and rising prices, while some export companies are also benefiting from improved productivity.
- Demand and output both continue to grow in Region North. Export-oriented manufacturing reports moderate growth, on a par with the pace in the previous round. Solid growth is expected during the next six months.
- Domestically-oriented manufacturing reports solid growth. The rate of growth is the same as in the previous round and is expected to be moderate during the next six months.
- Building and construction reports solid growth and expects the same growth rate during the next six months.
- Retail trade reports moderate growth and expects growth to continue at this rate during the next six months.
- Growth in demand for corporate services is solid and at the same level as in the previous round. The rate of growth for household services is moderate, i.e. the same as the previous round. Service industries expect solid growth during the next six months.
- Manufacturing and the local government and hospital sectors expect solid growth in investment during the next 12 months. Retail trade and the service sector report moderate investment growth.
- Employment growth in the service sector is solid and expected to be moderate in the period ahead. The local government and hospital sectors report moderate employment growth and also expect moderate growth in the period ahead.
- The labour supply is relatively satisfactory in all industries except building and construction, where there is a shortage of engineers, carpenters and machine operators.
- Cost increases are the result of higher wages and the effects of higher oil and metal prices. The effects are most pronounced in manufacturing and the transport sector.
- The export industry reports a satisfactory rise in prices over the last 12 months. Prices for construction and household services have risen moderately. The other sectors report an unchanged rise in prices. Expectations of higher price rises are greatest in domestically-oriented manufacturing and retail trade.
- Service industries report solid profitability due to increased demand for and sale of services. Profitability is moderate in the export industry and building and construction and stable in domestically-oriented manufacturing and retail trade.
Region Central Norway
- All industries report solid growth. Suppliers to the petroleum industry report the strongest growth. The growth rate appears to be rising in the export industry, retail trade and service industries.
- All industries expect growth to continue during the next six months. With the exception of suppliers to the petroleum industry, all industries expect the rate of growth to slow thereafter.
- Investment is rising in the region. It appears that all industries are increasing their investment activity in 2006 compared with 2005.
- Employment is increasing in the region. Employment growth is strongest in building and construction and service industries. All industries, with the exception of retail trade, are expected to increase employment during the next three months. There are indications of labour market tightening recently. Engineers, in particular, are in short supply at present.
- Developments in production capacity appear to be stable. Half of the contacts report that they have no idle capacity to accommodate growth in demand. This is the same share as in the two previous contact rounds.
- Annual wage growth is expected to be between 3% and 4.5%. Manufacturing and the public sector expect the lowest wage growth, while service industries expect the highest. In spite of high activity and a tighter labour market for both manufacturing activities and building and construction, expectations concerning wage growth in 2006 are lower than expectations for 2005 were one year earlier.
- There was a moderate rise in selling prices, except in the service sector, where the price rise was solid. Prices in retail trade have been unchanged for a long period. Now, however, they also appear to be rising. Companies expecting prices to rise at a slower pace outnumber companies expecting prices to rise at a faster pace.
- There is solid growth in profitability in manufacturing, retail trade and service industries. In spite of increased volumes, profitability has not improved in building and construction.
- 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. The rate of growth in retail trade is approximately unchanged from the previous round. Solid growth is reported for both household and corporate services. Growth in building and construction remains solid.
- The market outlook remains favourable for all industries in Region Inland. The majority of companies expect growth in demand, but somewhat less than in the previous period.
- In this round, less than half of the companies, a smaller share than in the previous round, report that they would have had difficulty in accommodating expected or unexpected growth in demand. Many companies in the building and construction sector are close to capacity limits.
- All industries, with the exception of building and construction, still appear to have an adequate supply of labour.
- The level of investment is increasing somewhat in most companies. Investment growth is slowing slightly in manufacturing, but is somewhat stronger in the local government and hospital sectors. In retail trade, investment appears to be declining somewhat.
- Employment is rising in the entire private sector, except retail trade and manufacturing. In the period ahead, growth is expected to continue at approximately the same pace as in recent months. Employment growth is still strongest in building and construction. Manufacturing employment is expected to increase slightly.
- Wage growth is projected at approximately 3% for most sectors. The introduction of mandatory occupational pensions entails higher costs for many companies, but has not led to expectations of a higher increase in labour costs than in 2005.
- In addition to higher wages, cost increases are dominated by the effects of higher prices for oil and fuel, petroleum products and metals. The effects are most pronounced in manufacturing and the transport sector.
- The rise in prices remains moderate and is most pronounced in building and construction and some service industries. The share of companies that expect prices to rise at a slower pace in the period ahead is larger than the share that expect prices to rise at a faster pace. Overall, prices have risen somewhat more slowly than in the previous round.
- Profitability is improving slightly in most business sectors, except the export industry. As in previous rounds, the primary driving force is increased volume, often coupled with higher prices and efficiency gains.
In autumn 2002, Norges Bank established a regional network of enterprises, organisations and local authorities throughout Norway. More about the regional network