Norges Bank

Regional network report

Regional network 4/2006

Interview period: August 2006

Summary

Demand, output and the market outlook

All industries report solid growth in demand and output during the period. Suppliers to the petroleum industry report particularly strong growth. The growth rate in this sector has slackened somewhat compared with the previous period since the industry is already operating at full capacity. The portion of domestic manufacturing that is oriented towards building and construction, the petroleum sector and the fish farming industry report solid growth. Within the export industry, there are reports of strong growth in the shipbuilding and ship equipment industry, furniture industry and fish farming. Once again, suppliers to the petroleum industry report 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 growth in all regions of the country. In Regions North-West and South-West, a large portion of construction activity is still linked to petroleum activity. In service industries, and particularly in corporate services, overall growth is solid. In the retail trade sector, growth is strongest for building materials, electrical goods and luxury goods and more moderate for clothing and cars.

On the whole, the market outlook is positive and growth is expected to remain at the same level. Again, suppliers to the petroleum industry expect the strongest growth. Growth is expected to slow, due in part to a lack of idle capacity.

Capacity utilisation and investment

59% of the companies report that they would have some or considerable problems in accommodating an increase in demand, compared with 53% in the previous round. Building and construction and some manufacturing sectors report the most pronounced capacity problems. Labour shortages are the primary constraint.

Investment is increasing in all industries, in pace with increased activity. Manufacturing, corporate services and the local government and hospital sectors are expecting the strongest investment growth. Both manufacturing and service industries are investing in increased capacity.

Employment and the labour market

The high activity level has contributed to a marked increase in employment. Employment growth in this round is the strongest that has been registered so far in the regional network. Building and construction and service industries report the strongest growth in employment. The increase is more moderate in the local government and hospital sectors. A large portion of the strong employment growth, particularly in Western Norway, must be attributed to the high activity level in and relating to petroleum activities. It appears that the positive developments in the private sector will continue during the next three months.

The labour market is tightening. 47% of the companies report that the supply of labour will be a constraint if demand increases. The share was 40% in the previous round and 24% one year ago. The shortage of skilled labour is most pronounced in building and construction and petroleum-related industry, although service industries report that the supply of labour is increasingly a constraint. However, there are wide geographical variations. As in the previous round, labour shortages are most severe in Regions South-West and North-West.

Costs, prices and profitability

Companies are expecting annual wage growth of about 4½ % on average in 2006. In the first round of interviews in 2006, companies expected annual wage growth of 3¾%. Expectations are now in the range of 4% to 5¼%. Building and construction and service industries are expecting the highest wage growth, while retail trade and the local government and hospital sectors are expecting the lowest wage growth.

Selling prices have increased in all industries during the past 12 months. The rise in prices is strongest in corporate services and building and construction. In retail trade and household services, the price rise is moderate. In the period ahead, the share of companies expecting prices to rise at a faster pace is somewhat larger than the share expecting prices to rise at a slower pace. The share of companies expecting a more rapid price rise is highest in corporate services and the export industry. In building and construction, a larger share of companies expects prices to rise at a slower pace, probably because prices in the industry have already risen considerably.

Profitability continues to improve in the entire private sector, due to increased activity, higher selling prices and enhanced efficiency. Suppliers to the petroleum industry, particularly shipyards, again report the most substantial profitability improvements. Corporate services and the export industry also report solid profitability improvements during the last period.

Region South-West

  • The cyclical upturn is continuing. As earlier, the activity level in the offshore supply industry is marked by strong growth. Growth is also strong in the corporate and household service sectors. In domestically-oriented manufacturing, the export industry and retail trade, growth is solid.
  • The growth rate in building and construction has moderated. This may primarily reflect an already particularly high activity level and may indicate that the sector is approaching capacity limits.
  • The market outlook for the next six months remains optimistic in all sectors. Service industries are most optimistic about growth, whereas those industries that have experienced the most pronounced growth this year - oil and gas and building and construction - expect growth to be more subdued.
  • Most sectors expect an increase in investment. In the local government and hospital sectors, the investment level remains relatively stable.
  • Employment is rising in most sectors. Roughly seven of ten businesses report that labour shortages are limiting their possibilities for expansion. The situation is particularly difficult for manufacturing and building and construction, as well as for some groups within the public sector.
  • More than half of the contacts expect to increase their workforce during the next three months. The labour market is tightening.
  • This is also indicated by accelerating wage growth. A number of sectors now expect higher annual wage growth in 2006 than indicated in the previous round of interviews. In most sectors, wage growth is estimated at roughly 4½% to 5% and even higher in building and construction.
  • Prices have increased in the last 12 months. Six of ten companies expect prices to continue rising at the same pace during the next 12 months, while more than 25% of the companies expect prices to rise at a faster pace. Prices are relatively similar to those reported in the previous round, although we have registered an accelerating rise in prices in relatively sheltered industries such as building and construction and services.
  • Profitability continues to improve in all business sectors. In many industries, profitability growth is somewhat lower than in the previous round. This is not the case, however, in domestic manufacturing, where profitability trends are stable, or in the service sector, where profitability is being strengthened further.

 Region South

  • The business sector in Region South is faring well. Both domestically-oriented manufacturing and the export industry report continued solid growth. Suppliers to the petroleum industry report solid growth, but it appears now that growth in this sector will stabilise at a lower level in the period ahead. This is partly because a number of companies are producing at full capacity. In building and construction and corporate services, the growth rate has slowed somewhat compared with the previous round, whereas the solid growth in retail trade continues.
  • Companies expect the current trend to continue for the next six months. It is not surprising, however, that they express concern about the future supply of labour and high electricity prices.
  • Capacity utilisation is roughly the same as during the previous round of interviews. 44% of the contacts report that they would have some or considerable difficulties in accommodating an increase in demand. Not surprisingly, capacity problems are most pronounced in building and construction. For manufacturing, the challenges are increasingly related to the labour supply.
  • The rate of investment in manufacturing remains solid. Companies are investing in increased capacity and product development. The investment rate is moderate in retail trade, but solid in the service sector. The local government and hospital sectors report solid growth in investment.
  • For the region as a whole, employment is rising, in pace with increased activity. Employment growth is strongest in the private sector and is fuelled primarily by oil-related impulses, building and construction investment and growth in private consumption. The supply of qualified labour may, however, limit the rate of growth in the period ahead, primarily in the private sector.
  • In a number of business sectors, expectations concerning annual wage growth in 2006 have risen. Expectations are higher than in the previous round in building and construction, service industries and the local government sector. Annual wage growth is estimated at 5% in manufacturing and 6% in building and construction and service industries.
  • Selling prices have risen in all industries except household services during the past 12 months. Selling prices have increased most for suppliers to the petroleum industry and corporate services.
  • Business sector profitability in Region South is solid. Profitability improvements are driven by higher volume, increased selling prices and relatively good cost control.

 Region East

  • All business sectors in Region East report solid growth. Growth is expected to continue at approximately the same pace in the period ahead.
  • Manufacturing activity remains solid. Our contacts in both domestically-oriented manufacturing and the export industry report increased output during the past three months. Growth is somewhat stronger in the export industry than in domestically-oriented manufacturing.
  • Output continues to rise in building and construction, but it appears that the peak has been passed. Market participants are operating at full capacity and there are limits to how much more they can expand.
  • There is solid growth in retail trade. There is solid demand for electrical goods, building materials and furniture in the upper price range. Demand for clothing, sports articles and food is more moderate. Clothing sales may have been affected by the unusually warm weather this summer.
  • The service sector, especially corporate services, reports solid growth. Demand for office support and staffing services is particularly strong, in line with steadily increasing employment. Our contacts in law firms, the advertising industry and IT/consulting sector report favourable conditions. Household demand for dwellings is strong.
  • Idle capacity is diminishing steadily in Region East. 44% of the companies report that they will now have difficulty in accommodating unexpected growth in demand. The supply of labour is the primary constraint. A new factor in this round is that retail trade will also have problems recruiting labour.
  • Employment has increased in all business sectors during the past three months, particularly in building and construction and service industries. There are plans to further increase employment in the period ahead, and increases will be most pronounced in the aforementioned industries.
  • Annual wage growth in 2006 is estimated at roughly 4½% overall. The estimate has risen, compared with the previous round, in building and construction and the local government sector.
  • Prices have increased moderately in the last 12 months. Prices in the retail sector, which have been stable for the past year, are unchanged. Prices are increasing most in building and construction and corporate services. Expectations of a further rise have declined, in pace with the rise in prices. The share of contacts expecting prices to rise at a faster pace is just over 20%, while half of the contacts expect prices to rise at the same pace as earlier.

 Region North-West

  • Both the export industry and domestically-oriented manufacturing report solid growth in volume during the last quarter. The export industry expects continued solid growth during the next six months, whereas domestically-oriented manufacturing expects moderate growth.
  • Suppliers to the petroleum industry and building and construction report that activity is still at a very high level. Suppliers to the petroleum industry indicate that the last quarter's growth in volume has been strong and that they expect continued strong growth during the next six months. Building and construction reports solid growth during the past quarter and expectations of continued solid growth during the next half year.
  • The retail sector reports solid growth during the past three months and expectations of solid growth during the next six months. The service sector on the whole reports solid growth during the past quarter and expectations of the same solid growth during the next six months.
  • 80% of the companies report that they would have had some or considerable problems in accommodating a rise in demand. This applies in particular to companies in the service sector, building and construction and the export industry. Most sectors also report considerable problems in procuring qualified labour.
  • All sectors report plans to increase investment during the next six-month period, with offshore shipbuilders planning the largest increases.
  • Employment has increased in all sectors except the public sector and most in building and construction. Employment is expected to increase further in the period ahead in the same sectors.
  • Average annual wage growth in 2006 is estimated at between 4% and 4.5% for all sectors except building and construction where wage growth is expected to be over 5%. This is somewhat higher than reported in the previous round.
  • On the whole, price increases have been moderate during the past three months. Prices have increased most in domestically-oriented manufacturing and corporate services. Offshore supply activities report the strongest rise in prices during the last 12 months. The share of contacts that expect prices to rise at a faster pace during the next 12 months is now 36%, a slight increase compared with the previous round. Half of the contacts expect the rise in prices to remain unchanged.
  • Growth in profitability is generally solid in all sectors, while the offshore industry reports the strongest growth.

 Region North

  • Growth in demand and output continues in Region North. The export industry reports strong growth and a higher growth rate than in the previous round. Solid growth is expected during the next six months.
  • Domestically-oriented manufacturing also reports solid growth and a higher growth rate than in the previous round. Solid growth is also expected during the next six months, but the growth rate is expected to slow somewhat.
  • Building and construction report solid growth and a somewhat higher growth rate than in the previous round. Growth is expected to be solid during the next six months, but the growth rate is expected to slow somewhat.
  • Retail trade reports solid growth and a growth rate at the level prevailing in the previous round. Solid growth is also expected during the next six months.
  • Corporate services report solid growth in demand and a somewhat higher growth rate than in the previous round. The growth rate for household services is moderate and remains at the level prevailing in the previous round. Service industries expect solid growth during the next six months.
  • 61% of the companies report that they would have some or considerable problems in accommodating an increase in demand, compared with 31% and 56% in rounds two and three in 2006. This indicates that a high level of activity has resulted in increased capacity utilisation, with improved utilisation of production equipment and intensified competition for qualified labour, also in Region North.
  • Manufacturing, retail trade and the local government and hospital sectors expect moderate growth in investment during the next 12 months. Service industries report zero investment growth.
  • There is moderate growth in employment in manufacturing and the local government and hospital sectors, but employment levels are unchanged in other sectors. In the period ahead, moderate employment growth is expected in building and construction and service industries, while employment is expected to remain unchanged in manufacturing, retail trade and the local government and hospital sectors.
  • Both manufacturing and retail trade have a fairly adequate supply of labour. There is a shortage of specialist engineers, project managers and skilled workers in building and construction. In the service sector there is a shortage of specialist labour in IT, auditing, the real estate business, sales and bank management, and of qualified labour in industrial laboratory services. In the local government and hospital sectors, there is a limited supply of specialists and qualified engineers with technical expertise.
  • Annual wage growth in 2006 is estimated at between 3.5% and 5%. Estimates in all sectors except the local government and hospital sectors have increased compared with estimates in the previous round. Intense competition for labour is the most common explanation for wage growth that is higher than previously assumed.
  • Cost increases are a result of higher wages and the effects of higher prices for oil, electricity and commodities. The effects are most pronounced in manufacturing, the transport sector and building and construction.
  • Manufacturing reports a solid rise in prices in the last 12 months, with the sharpest price rise in domestically-oriented manufacturing. Corporate services and the export industry also report a solid rise in prices. A moderate rise in selling prices is reported in building and construction, as opposed to a moderate decline in prices for household services. In retail trade, the rise in prices remains unchanged. Expectations of a stronger rise in prices are most pronounced in household services and the export industry.
  • Manufacturing reports moderate growth in profitability as a result of increased demand and output. The other sectors report moderate profitability growth.

 Region Central Norway

  • It appears that there is still growth in all industries in Region Central Norway. Growth appears to be most buoyant in domestically-oriented industry and among suppliers to the petroleum industry. The outlook is positive, and all industries expect moderate to solid growth in the next sixth months.
  • Investment plans indicate increased investment in all industries in the next 12 months. Retail trade and service industries are planning the strongest growth in investment.
  • All industries and the public sector report growth in employment. Growth is strongest in manufacturing and service industries. There are indications that employment will continue to expand in all industries and the public sector in the period ahead.
  • Idle production capacity now appears to be lower than earlier this year. This applies to all industries, but there appears to be little idle capacity in building and construction in particular. The most common constraint is the supply of qualified labour, whereas in manufacturing the size of the facilities appears to define the capacity limit.
  • Annual wage growth is expected to be between 4% and 5% in all industries and the public sector. In manufacturing and building and construction, wage growth is expected to be higher now than earlier this year. There are also reports of increased local pay rises and increased use of bonuses in order to retain people because the labour market is so tight.
  • Prices in all industries appear to be rising. Retail trade and corporate services report a moderate rise in prices, while in other industries price rises appear to be solid. Signals from domestically-oriented manufacturing indicate that prices will rise at a faster pace than earlier this year.
  • Profitability appears to be improving in all industries. Due to growth in volume in domestically-oriented manufacturing, profitability appears to be increasing more than earlier in the year. The service industry also reports stronger profitability growth than earlier.

 Region Inland

  • On the whole, there has been solid growth in demand in Region Inland during the period. In a number of industries, growth is stronger than in the previous round. The growth rate over the next six months is expected to be roughly the same as during the past 3 months.
  • Manufacturing output is still increasing. Growth is somewhat stronger in domestically-oriented manufacturing than in the export industry as a result of substantial activity in building-related manufacturing. Companies in this industry are reducing sales to the export market in favour of the domestic market because of higher prices and high demand.
  • Building and construction also report solid growth in production, partly due to extensive building of apartments and leisure homes. The majority of Norges Bank's contacts are operating at virtually full capacity, and this may be a constraint on further growth.
  • Growth in services is continuing. Demand is increasing for IT consultancies, banks, hotels, architects and temporary staff recruitment agencies.
  • Capacity utilisation is higher now in many companies. The share of enterprises that will encounter problems in accommodating an unexpected increase in demand is around 54%, which is higher than in the previous round. The supply of qualified labour is the most important constraint, particularly in the service sector and building and construction.
  • Employment growth appears to have increased somewhat since the previous round. Employment has increased in all sectors except the local government and hospital sectors, where it has remained stable, and in manufacturing, where there has been a moderate decline. The increase is strongest in retail trade and services. Companies are planning a further increase in employment, particularly in the service sector. Employment in building and construction appears to be stagnating.
  • The level of investment is stable in manufacturing and the service sector, whereas in the previous round it rose somewhat. Investment in retail trade is declining somewhat, as in the previous round. The decline in investment in the local government and hospital sectors reported in the previous round has been followed by growth.
  • Annual wage growth is projected at about 4% for all industries as whole. The estimate for building and construction has increased compared with the previous round and fallen slightly for manufacturing. The estimate for wage growth is about 1 percentage point higher than in the same round in 2005.
  • Selling prices are increasing somewhat more than in the previous round, and most in the service sector and building and construction. Expectations of a further rise in prices are more subdued than in the previous round. The share of contacts expecting prices to rise at a faster pace is just over 20%, while about half of the contacts expect prices to rise at the same pace. Expectations of a slower rise in prices are highest in building and construction, while expectations of a faster rise in prices are highest in the service industry.
  • All industries report a moderate improvement in profitability. Profitability growth has declined somewhat in services and retail trade.

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

Published 27 September 2006 10:24