Norges Bank

Regional network report

Regional network 1/2007

Series:
Regional network report
Number:
1/2007

Interview period: January and February 2007

Summary

Demand, output and the market outlook

Solid growth is still being reported in all business sectors, but somewhat weaker than in the previous round. Growth has slowed in domestically-oriented manufacturing and building and construction. There is still rapid growth among the suppliers to the petroleum industry and corporate services. The outlook for the next 6 months is positive, but somewhat weaker growth is expected in all business sectors.

There is still solid growth in both the export industry and domestically-oriented manufacturing, although growth is a little slower than in the previous round. For domestically-oriented manufacturing, suppliers of furniture, home furnishings and equipment to the commercial building industry and to some extent building material producers report the strongest growth. In the export industry, there is solid to strong growth in some parts of the processing industry, the fishing industry and some parts of the technology industry. Suppliers to the petroleum industry are growing at about the same rate as in the previous round with especially strong growth in shipping and supply services. Growth is slower in building and construction. A rising number of companies report that capacity constraints are limiting growth. The market for commercial buildings is expected to continue to grow, while housing construction will probably slow down or stabilise. There is solid growth in construction. In the service sector, growth is sustained and solid, and it is strongest in business services and transport.

Capacity utilisation and labour availability

56 per cent of the companies report that they will have some or considerable problems meeting an expected or unexpected growth in demand, while 47 per cent report that labour availability will restrain production if demand increases. These percentages are lower than in the previous round, but about at the same level as round 4 in 2006. The impression from the interviews, however, is not that the capacity situation has improved or that the labour market is less tight. There is reason to believe that the composition of the sample may explain some of the decline. Among other things, fewer contacts from suppliers to the petroleum industry and from the export industry are included compared with the previous round.

Capacity utilisation and labour shortages are highest in building and construction and manufacturing. Labour shortages are most pronounced for professionals with higher education, such as engineers, architects, economists and labour with IT skills, but there is also a shortage of drivers and mechanics.

Employment and the labour market

Employment has increased considerably in the previous 3 months. Growth is somewhat slower than in the two previous rounds. The service sector has had the greatest increase in employment, followed by building and construction and manufacturing. Further growth in employment is expected in the next 3-month period. However, the outlook is somewhat weaker than in the previous round. The room for growth in employment is partly limited by the availability of skilled labour. All in all, it would seem that the employment growth has now peaked.

Costs, prices and profitability

Estimated annual wage growth as a weighted average this year is 4.5 per cent. This is somewhat weaker than reported in round 5 2006, but much stronger than the expectations in the corresponding round in 2006. It is especially in manufacturing and retail trade that expectations are higher than in the previous year.

The rise in prices is at approximately the level prevailing in the previous round after having increased throughout all of the previous year. In building and construction,the rise in prices is now clearly moving up. In the next 12 months, 44 per cent of our contacts expect prices to remain unchanged, 37 per cent expect a higher rise in prices, and 20 per cent expect a lower rise in prices. Expectations of a sharper rise in prices are higher than in the previous rounds. Building and construction and domestically-oriented manufacturing expect the sharpest rise in prices. Only in the export industry does a majority of our contacts expect a lower rise in prices.

Profitability has increased in most business sectors compared with the same period in the previous year. It has increased most for suppliers to the petroleum industry, but there has also been a marked increase in other manufacturing and in the service sector. In the service sector, it is especially the financial industry and business services that report a strong increase in profitability.

Region South-West

The cyclical upturn continues. The activity level among suppliers to the petroleum industry continues to increase. Retail trade had especially strong growth in this round. The export industry and the service sector also report solid growth.

Growth in the building and construction sector remains moderate, reflecting an especially high initial activity level and indicates that the sector is approaching capacity limits. Growth is also moderate in domestically oriented manufacturing in this round.

The market outlook for the next six months is positive. All business sectors expect solid growth.

Investment is expected to increase in all business sectors. Most noteworthy relative to previous rounds is the investment growth in the local government sector. This is a clear indication that the financial position of the the local government sector is currently favourable.

About half of the businesses think that a shortage of labour may limit their possibilities for expansion. All industries are facing labour supply constraints. The situation is particularly difficult in the building and construction sector.

Employment is increasing in all industry sectors, including the local government sector. Nearly half of the contacts expect to increase their workforce over the next three months. Only a few will be reducing their workforce. The labour market will remain very tight.

So early in the year, many of our contacts express some uncertainty about how strong wage growth will be. So far, estimates indicate that annual wage growth will be about the same as last year.

Prices have risen sharply in the petroleum sector and building and construction. The rise in prices is moderate in some parts of the service sector and domestically-oriented manufacturing. In the export industry, prices are falling, while they remain relatively stable in retail trade. About four out of ten companies expect a sharper price rise in the next twelve months, while three out of ten expect a stable price development compared with the previous year. On the whole, prices are expected to show a somewhat sharper rise than in the previous round.

Profitability will remain stable or positive in all business sectors.

Region South

Manufacturing reported moderate growth, or a somewhat lower growth rate than in the autumn and winter of 2006. Suppliers to the petroleum industry also report slower growth now than one year earlier because more and more businesses in manufacturing are producing at full capacity utilisation. Growth in building and construction, retail trade and the service sector is solid and on a par with the previous round.

The majority of our contacts also expect the same growth 6 months ahead. A minority expect a somewhat slower rate of growth because the initial activity level is now higher. Business and industry are optimistic about the future even though several business sectors are concerned about shortages of sough-after technical expertise.

In manufacturing and the service sector, the rate of investment is moderate. In the local government sector, investment seems to be edging down. Because of pressures in the building and construction sector and a shortage of materials, budgeted local government projects will be postponed.

Capacity utilisation in Region South is about the same now as in the autumn and winter of 2006, but capacity problems have clearly increased in scope within some manufacturing sectors. The biggest capacity problems are still in building and construction.

Employment continues to increase. Although growth is highest in the private sector, the improvement in local government finances has also had a positive effect on employment.

Annual wage growth is expected to range between 4-6 per cent.

Selling prices show solid growth, slightly stronger growth than in the previous round. Selling prices have risen most among suppliers to the petroleum industry, the shipbuilding industry and business services. Next year, 59 per cent expect an unchanged rise in prices and 29 per cent expect a higher rise in prices.

Region East

There is still solid growth in Region East, on a par with the previous round. The market outlook is positive, but our contacts expect overall growth to be somewhat slower in the period ahead.

Manufacturing is still doing well in the region. In domestically-oriented manufacturing, suppliers to building and construction have had the strongest growth, as they have for a long period of time. Capacity constraints and more moderate expectations in building and construction contribute to our contacts expectations of slower growth in the period ahead. In the export industry, the technology industry and suppliers to the offshore sector in particular report strong growth.

In building and construction, there was moderate growth in the previous period, and it is mainly capacity that is constraining growth. Demand is still strong. In the period ahead, it would appear that growth in housing construction will slow down, while growth in construction and commercial building activity will pick up.

In retail trade, there is solid growth in consumer goods such as clothing, furniture and electrical goods. There has been a weaker development for sports equipment as a result of the lack of snow at the outset of the winter.

Corporate services report strong growth during the previous period. Business services, finance and transport in particular have contributed to the strong growth. There is also solid growth in household services, such as telecommunications and the hotel and restaurant industry. There are very few signs of a slowdown.

55 per cent of the companies will have problems in this round meeting expected and/or unexpected growth in demand. That is a decline from November, but still considerably higher than reported in the other rounds last year. There are still reports of problems hiring sufficient manpower, especially in building and construction and in the service sector.

Employment has increased in the service sector, building and construction and the local government sector in the previous 3 months, but at a somewhat slower rate than previously. It would appear that growth in employment has peaked. In the period ahead, there are plans for further increases in the service sector and building and construction, but no change in the other sectors.

Estimated annual wage growth this year is about 5 per cent. This is approximately equal to estimated annual wage growth for 2006 reported in November. However, there is always great uncertainty associated with estimates for wage growth so early in the year.

In the previous 12 months, prices have increased at the same rate as in the previous round. It is especially building and construction, manufacturing and corporate services that have had a solid rise in prices in the previous year. In the next 12 months, 45 per cent of our contacts expect unchanged price rises, 40 per cent expect higher price rises, and about 15 per cent expect lower price rises. The percentage that expect higher price rises is higher than in the previous round. Compared with the previous round, more of our contacts expect higher price rises in corporate services and in retail trade.

Region North-West

Domestically oriented manufacturing reports high volume growth on the whole, and also expects solid growth in the next six months. As previously reported, it is especially manufacturing supplying the offshore industry that reports solid and in generally strong growth, but also industries supplying goods and services to building and construction and fish farming are experiencing solid growth. The food industry is facing a period of tough competition and moderate growth. The export industry is still experiencing solid growth, but growth is expected to slow somewhat in the next six months.

Growth in demand in the petroleum sector will continue to increase and the period of further growth is expected to be longer than earlier. New offshore vessels are contracted for delivery up to 2010. Capacity problems in shipyards are currently constraining further growth.

Building and construction is operating at full capacity utilisation and with extensive use of contract labour. There is high demand from manufacturing, the public sector and the residential construction industry. There are signs that the growth will level off in the next six months because of a shortage of labour.

Retail trade reports solid growth in the past quarter and expects a similar development in the next six months. Competition is intense and the rise in prices is moderate. There is still solid growth in both the corporate and household service sectors. Growth is expected to remain steady in these sectors in the next six months.

There are plans for increased investment in all industry sectors, but the highest increases will be in the service sector and the public sector.

There was employment growth in all industry sectors except building and construction in the previous period. A shortage of labour has been the constraint here. Employment growth has been highest in manufacturing. However, there has been a considerable shortage of skilled labour – especially engineers and project managers – in manufacturing as well. About 70 per cent of the companies respond that they would have had some or considerable problems meeting an increase in demand. This is a somewhat lower percentage than reported in the previous round, but this may be due to the sample.

Wage growth in 2007 is expected to be around 4 per cent, which is slightly lower than in November 2006. However, many contacts are extremely uncertain about their estimates and are concerned that actual growth will be somewhat higher. Combined with concerns about a stronger krone, this represents a major source of uncertainty with regard to future profitability for the traditional export industry,.

The overall rise in prices in the previous year has been relatively high, especially in building and construction, domestically oriented manufacturing and corporate services.

Profitability has improved for all sectors, but as previously, suppliers to the petroleum industry in particular have recorded the highest profitability gains.

Region North

There is still solid growth in Region North. In the period ahead, growth is expected at about the same rate.

Growth in domestically-oriented manufacturing will continue, but at a slower rate than earlier. Growth is primarily driven by the shipbuilding industry and suppliers to the petroleum industry. Growth is increasing in the export industry. There is very strong demand for metals and fish. There is no sign of a slowdown in the export industry. Solid growth is expected in manufacturing in the period ahead.

In building and construction, there is zero growth, primarily reflecting high capacity utilisation. Zero growth is also projected in the next six months.

In retail trade, there is solid growth, but moderate growth is projected in the next 6 months. Growth is highest for sales of brown and white goods, furniture and sports articles.

Growth will also continue in the service sector, and growth rates will be a somewhat higher than in the previous round in corporate services. Growth is strongest in staff recruitment, technical consulting, legal services, management consulting, IT services and banking.

56 per cent of the contacts report in this round that they will have some or considerable problems meeting an expected or unexpected growth in demand. This is on a par with the two previous rounds.

There has been growth in employment in manufacturing, the service sector, retail trade and the local government and hospital sectors. In building and construction, employment was unchanged from the previous period. For the next three months, growth in employment is expected in the service sector and manufacturing. Growth is expected to be strongest in the service sector. In the other sectors, employment will be stable. The percentage that report that labour availability is a constraint is still highest in building and construction. Compared with the previous round, labour availability has been a greater constraint in the service sector and the local government and hospital sectors.

Annual wage growth for 2007 is expected to be between 3.5 and 5 per cent in this round, which is higher than in the round one year earlier.

Prices in the previous 12 months have risen sharply in manufacturing and moderately in the household services. In retail trade,the rise in prices was zero, while there has been a marked rise in prices in the other sectors. The greatest change on the previous round was in domestically oriented manufacturing. In the next 12 months, 44 per cent of our contacts expect unchanged price rises, while 30 per cent expect higher price rises. The percentage that expect higher price rises is higher than in the previous round. Expected prices rises are highest in building and construction, which is the sector with the highest overall increase in raw material prices.

Region Central Norway

There still appears to be growth in all business sectors. Growth appears to be strongest for suppliers to the petroleum industry and corporate services. Growth in all business sectors is also expected in the next six months.

Investment appears to be increasing in all industry sectors and the public sector. Retail trade is the business sector with plans for the highest growth in investment. For the service sector, it would seem that major previous investments will result in a lower level in the period ahead.

Employment is increasing in all business sectors and the public sector. Growth appears to be strongest in services. In the next 3 months, it would seem that growth will come to a halt in retail trade and the public sector.

There is little spare production capacity and the most commonly reported constraint is the availability of skilled labour. It is reported that manpower with engineering expertise is especially difficult to find.

Annual wage growth is expected to be between 4 and 6 per cent. Growth is expected to be highest in services. With the exception of building and construction, all industry sectors and the public sector expect faster growth this year than at the same time last year.

Prices seem to be rising in all business sectors, but are rising fastest in building and construction. Signals point to higher price rises in building and construction and retail trade.

Margins appear to have improved for the export industry, suppliers to the petroleum industry and services. Reduced margins are reported in building and construction.

Region Inland

On the whole, there was solid growth in demand and output in Region Inland during the period.

Growth in building and construction is somewhat weaker than in the previous round, partly reflecting capacity constraints.

Manufacturing reports relatively strong growth. Growth is strongest for suppliers to the building sector and the export industry, e.g. the engineering industry. The service sector is growing faster than in the previous round and growth is strongest in banking, consulting and temporary staff recruitment agencies.

The market outlook is still good for all business sectors in Region Inland; they are roughly the same as in the previous round. The growth outlook is best in the service sector and the export industry. In building and construction, residential construction is expected to level off, but an increase is expected in public sector building and commercial buildings. Our contacts in the private sector expect somewhat slower overall growth in the period ahead.

The investment level is dropping markedly in retail trade and the service sector, while it is rising somewhat in manufacturing and in the local government sector.

The percentage of companies that report that they would have had some or considerable problems meeting an expected or unexpected growth in demand has risen in all of the last four rounds and is now at 66 per cent. The increase is greatest for manufacturing, retail trade and the local government sector.

56 per cent respond that labour availability is a constraint on output. This is somewhat higher than in the previous two rounds. As earlier, the highest percentages of companies that cite labour availability as a constraint are in building and construction and the service sector.

Employment is edging up in manufacturing and local government, while it is increasing somewhat faster in the service sector and building and construction. Roughly the same development is expected in the period ahead, except that employment in manufacturing will stabilise.

The estimate for wage growth is 4-4.5 per cent, which is higher than that expected in corresponding round in 2006.

On the whole, price rises are at roughly the same level as in the previous round, but they are somewhat lower in household services and higher in the export industry and retail trade. Price rises are highest for building and construction and corporate services.

Slightly more companies expect higher as opposed to lower price rises in the next 12 months, 34 as opposed to 29 per cent. However, the expectations of higher price rises are somewhat less pronounced than in the previous round.

Profitability is increasing for most industry sectors, most markedly for domestically-oriented manufacturing and the service sector.

 

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

Published 16 March 2007 15:00
Published 16 March 2007 15:00