Norges Bank

Regional network report

Regional network 2/2007

Series:
Regional network report
Number:
2/2007

Interview period: March 2007 

Summary

Demand and output

All industries report solid growth. On the whole, growth is at the same level as in the previous round. Expectations for the next six months are positive. However, most industries also report that labour shortages are limiting the possibility of further growth.

Compared with the previous round, growth is slowing somewhat among suppliers to the petroleum industry and the export industry, whereas growth is picking up for domestically oriented manufacturing, building and construction and corporate services. In domestically oriented manufacturing, producers of building materials report the strongest growth.

Within the export industry, there is continued growth in the metals industry, engineering industry, fish farming and the fish processing industry as well as some segments of the technology industry. Suppliers to the petroleum industry report strong growth in ship services and machine and equipment deliveries. Some shipyards also report strong growth due to the shipping industry's renewal of its offshore supply fleet. In this round, however, suppliers to the petroleum industry report the lowest growth since the beginning of 2005. Building and construction report shortages of labour and some types of building materials. These shortages have an impact on the real increase in activity resulting from increased demand. Commercial building and construction report continued solid growth, whereas residential construction will probably slow or stabilise. In the retail trade sector, growth in sales is strongest for building materials, brown and white goods, office machines and cars. In the service sector, commercial and financial services in particular are pushing up growth.

Capacity utilisation and supply of labour

62% of companies report that they would have some or considerable difficulty in accommodating an expected or unexpected increase in demand, while 53% report that the supply of labour would limit output growth if demand increased. These shares are higher than in the previous round, but approximately the same as in the autumn of 2006. As in previous rounds, building and construction, where labour shortages are most pronounced, report the highest capacity utilisation.

Employment and the labour market

Employment has increased in the last three months at approximately the same pace as in the previous round. However, employment growth is somewhat weaker now than in the last rounds in 2006. Employment in the service sector has increased most. Employment growth is expected to continue in the next three months, but at a somewhat slower pace. A number of industries report that an increase in employment is conditional on the supply of labour.

Costs, prices and profitability

Estimated annual wage growth this year is 4¾% as a weighted average, compared with 4½% in the previous round. This is considerably higher than the estimate for 2006 made at the same time last year. As in the previous round, a number of contacts express concern that wage growth may be higher than budget. Building and construction and the service sector expect the highest wage growth.

There has been a solid rise in selling prices during the past 12 months, the sharpest rise we have registered so far in the network. Building and construction, corporate services and domestically oriented manufacturing report the sharpest rise in prices. In the next 12 months, 33% of our contacts expect prices to rise at a faster pace, 45% expect prices to rise at the same pace, while 22% expect prices to rise at a slower pace. The share expecting prices to rise at a faster pace is highest in building and construction, domestically oriented manufacturing and household services. The export industry is the only industry where a majority of contacts expect a slower rise in prices.

Profitability has improved in most industries compared with the same period last year. Suppliers to the petroleum industry report the greatest improvement, but profitability has also increased considerably in other manufacturing sectors and the service sector. The picture is the same as during the previous round.

Region South-West

The upturn continues. In this round of interviews, corporate services and retail trade report particularly strong growth.

The activity level among suppliers to the petroleum industry remains high. Domestically oriented manufacturing, building and construction and household services are also characterised by solid growth.

The market outlook for the next six months is positive. All sectors are expecting growth. The export industry is expecting the slowest growth.

Increased investment is expected in all industries except retail trade.

Three of four contacts believe that labour shortages may limit opportunities for expansion. All sectors are facing constraints related to labour shortages. The situation is still particularly difficult in the building and construction sector.

Employment is rising in all industries, including the local government sector. Nearly half of the contacts expect to increase their workforce during the next three months. Only three of forty contacts will reduce their workforce. The labour market will remain very tight.

Expectations indicate that annual wage growth will be approximately the same or marginally higher than in 2006.

Prices continue to rise considerably, although the rise in prices is somewhat lower than in the previous round in the service sector and in building and construction. Prices are relatively stable in the export industry and retail trade.

Roughly three of ten companies are expecting prices to rise at a faster pace during the next 12 months, whereas five of ten are expecting prices to rise at the same pace as last year. On the whole, expectations of a rise in prices are somewhat lower than in the previous round.

Region South

All industries report solid growth. Manufacturing reports solid growth, a somewhat higher growth rate than registered in February, but in line with growth in the autumn of 2006. Growth in building and construction, retail trade and the service sector is solid and remains at the level prevailing during the last round of interviews.

A majority of our contacts are expecting the same growth during the next six months. The market outlook is very favourable. Delivery time is longer in all sectors, however, and the labour market is tightening further.

Manufacturing and service industries report a slight decline in planned investment. Among manufacturing companies, this is primarily because the investment level has been high for a longer period. Investment plans are reduced somewhat for this reason or because there is no longer a need for further investment. Investments remain high in the local government and hospital sectors.

Capacity utilisation in Region South is roughly the same now as in the autumn and winter of 2006. 44% of the contacts report capacity problems. Compared with the feedback from the last round of interviews, a larger share currently report that labour shortages will be a constraint on output growth if demand increases.

Employment has risen in the private sector. Employment growth has been most pronounced in building and construction, manufacturing and commercial services. In the local government sector, employment has risen slightly in the healthcare area.

Annual wage growth is expected to be between 4% and 6%.

Our contacts report a solid rise in selling prices, a somewhat higher rise than in the previous round. The increase is most pronounced for suppliers to the petroleum industry, wood products and the process industry as well as commercial services. During the next 12 months, 61% of our contacts expect prices to remain unchanged, while 33% expect prices to rise at a slower pace.

Region East

Growth continues in Region East. All industries report solid growth during the past three months. The market outlook is positive, but our contacts expect somewhat lower overall growth in the period ahead.

Domestically oriented manufacturing reports continued solid growth. Subcontractors to the building and construction sector as well as suppliers of interior and household furnishings report the strongest growth, as has been the case for a considerable period. The growth rate in the export industry is solid. The process industry reports high prices.

There has been solid growth in building and construction during the last period. Growth is expected to be moderate, however, in the period ahead, primarily as a result of capacity constraints. Demand remains strong.

Growth in retail trade remains solid. The increase in sales is most pronounced for building materials, clothing and electrical items.

The strong growth in corporate services continues. As in the year's first round of interviews, commercial and financial services in particularly are pushing up growth. There is also solid growth in household services, including telecommunications and hotel and restaurant services.

52% of the companies will have problems accommodating expected or unexpected growth in demand. This is somewhat fewer than in the last round, but more than in September. Building and construction continue to have the least spare capacity.

Employment has increased in the past three months, but growth is lower than in the three previous rounds. Employment growth has been strongest in the service sector, whereas manufacturing employment overall has declined. Companies plan to increase employment somewhat in the period ahead, although at a slower pace than we have seen for a long period. On the whole, it appears that employment growth has passed the peak, as indicated in the previous round.

Annual wage growth in 2007 is estimated at approximately 4¾%.

A solid rise in selling prices is reported. The rise in prices has picked up somewhat since the previous round due to a somewhat higher rise in prices for household services. In the next 12 months, 45% of our contacts expect prices to rise at a faster pace, 35% expect prices to remain unchanged, while 20% expect prices to rise at a slower pace. The share expecting prices to rise at a faster pace is higher than in the previous round. In retail trade in particular, expectations of a higher rise in prices have increased compared with the previous round.

Region North-West

The export industry reports strong growth in volume in the past 3 months. Growth is expected to slow in the next six months, but the level of activity will remain very high. Manufacturing for the domestic market reports solid growth in the past quarter, and expects growth to remain solid for the next six months.

Activity among suppliers to the petroleum industry continues to increase, but the growth rate has slowed somewhat compared with previous reports. However, new offshore vessels are still being ordered for delivery several years ahead. Further growth is now being curbed by capacity problems among shipyards and their suppliers.

As reported in the previous round, building and construction are operating at full capacity. Growth has been solid in the past quarter, with substantial demand from manufacturing, the public sector and the housing market. The same solid growth is expected for the next six months, but a shortage of labour is now a major uncertainty factor with respect to further growth.

Retail trade reports solid growth in the past quarter and expects similar developments in the next six months. Solid growth is reported for the whole services sector, but particularly in corporate services. Growth in these sectors is expected to remain unchanged for the next six months.

All sectors are planning to increase their investment. Retail trade has the most moderate investment plans.

Employment growth in the last quarter has been solid in manufacturing, building and construction and service industries. The export industry and suppliers to the petroleum industry report the highest employment growth. However, skilled labour is in very short supply. 91% of the companies report that they would have had some or considerable difficulty in accommodating a further rise in demand.

Wage growth in 2007 is expected to be about 4.5%, which is slightly higher than reported in the previous round.

A solid rise in selling prices is reported. Corporate services report the strongest rise, and export industry and retail trade the slowest. Just over 50% of contacts expect a higher rise in prices over the next 12-month period. This is slightly higher than reported in the previous round. Profitability has moved along a positive path in most sectors. Suppliers to the petroleum industry report unchanged profitability in the past period, but their operating margin is already at a very high level. Retail trade also reports unchanged profitability in past period.

Region North

Growth is reported by all sectors in Region North, and is expected to continue at approximately the same pace in the period ahead.

Manufacturing reports solid growth. Growth in manufacturing for the domestic market continues, driven primarily by the building materials and engineering industries. Growth in the export industry is also solid, and shows no signs of slowing. Solid growth is also expected in manufacturing in the upcoming period.

Building and construction report moderate growth, and expect this to continue for the next six months. Public sector developments are expected to constitute a larger share of assignments in the immediate future.

Retail trade reports solid growth, which is expected to continue for the next six months. Growth is strongest in sales of brown and white goods, office machines and cars.

The service sector reports continued growth, and household services report somewhat higher growth than in the previous round. Growth is strongest in auditing, hotels, travel agencies, transport, advisory services, IT services and banking.

In this round, 66% of the contacts report that they would have some or considerable difficulty in accommodating expected or unexpected growth in demand. This is an increase on the previous round, when 56% gave this response.

Employment has risen in manufacturing and services but remained unchanged in the other sectors during the period. For the next three months, employment growth is expected in manufacturing, while in the other industries employment is expected to remain stable. The share reporting that the labour supply is a constraint remains highest in building and construction. The supply of labour has become a greater problem in manufacturing and in the municipal and hospital sectors than in the previous round.

Annual wage growth in 2007 is estimated at between 4.5% and 5.5%. Expectations are higher than in the same round in 2006.

The rise in prices over the past 12 months has been strong in manufacturing and building and construction, solid in services and unchanged in retail trade. 44% of our contacts expect prices to remain stable in the next 12 months, while 31% expect them to rise at a faster pace. The share that expects a faster rise in prices is the same as in the previous reporting round. Expectations are highest in building and construction, which is the sector with the highest rise in prices for input factors.

Region Central Norway

All industries report solid growth. Growth appears to be strongest in the export industry and corporate services. The market outlook is generally positive, and all industries expect continued growth.

Investment appears to be increasing in all industries, particularly in retail trade and the local government and hospital sectors.

All industries report employment growth apart from retail trade and the public sector, where employment has been stable. Those industries reporting growth today expect it to continue in the period ahead.

There is little idle production capacity, particularly in the building and construction sector and in corporate services. The most common production constraint is a shortage of labour.

Generally higher wage growth is expected this year than in 2006, first and foremost in building and construction and services. Building and construction and the public sector expect higher growth now than in the previous round.

A solid rise in selling prices is reported on balance. Growth appears to be strongest in building and construction and in services. Capacity and labour constraints now appear to be causing a strong rise in prices. Prices in retail trade and household services appear to be rising more moderately.

Better margins are reported for suppliers to the petroleum industry, the service sector and building and construction. No industries are finding that margins are declining now.

Region Inland

On the whole, Region Inland reports solid growth in demand and production. Growth has declined somewhat in the export industry and corporate services, whereas it has increased in retail trade.

Growth in manufacturing is generally solid, particularly in manufacturing for the domestic market. The food industry is experiencing increased demand for ready meals. Suppliers to the building industry report strong demand, but capacity and labour constraints are curbing growth.

Building and construction report continued solid growth, with activity slightly on the rise this round. The growth pace of commercial construction is higher than that of residential construction.

Growth in retail trade is judged to be appreciably stronger than in the previous round. Rising sales of building materials, sports articles, textiles and toys and gift articles contributed to solid growth in this round.

Growth in services is roughly in line with previous rounds. Growth is solid to strong in commercial and financial services, tourism and the restaurant business.

The outlook for the next 6 months implies approximately unchanged growth and relatively similar growth prospects for most industries.

The investment level is stable in manufacturing and the local government sector, slightly falling in services, and rising in retail trade.

51% of companies report in this round that they would have some or considerable difficulty in accommodating an expected or unexpected increase in demand, while 33% report that the supply of labour would limit output growth if demand increased.

Employment has risen in the past 3 months, particularly in manufacturing. Increased employment is expected in all parts of the private sector in the period ahead. The fact that a number of companies explicitly make reservations about being able to secure personnel with the necessary qualifications is a measure of labour supply constraints.

As in the previous round, estimated wage growth is 4%-4.5%, which is appreciably more than reported in the same round in 2006. The estimate for wage growth has risen since the previous round in manufacturing and local government.

Price inflation has climbed in most industries, and is 6-8% for domestically oriented manufacturing, services and building and construction. The export industry reports a slower rise in prices than in the previous round.

On balance, expectations indicate stable price inflation for the next 12 months. Prices in building and construction and other services are expected to continue rising strongly.

Profitability has improved in all industries. The increase in profitability, and the change since the previous round, are most pronounced for retail trade because of increased volume and improved margins.

 

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

Published 27 April 2007 14:00
Published 27 April 2007 14:00