Norges Bank

Regional network report

Regional network 3/2007

Series:
Regional network report
Number:
3/2007

Interview period: May 2007

Summary

Demand and output

All industries report continued solid growth. Overall, growth is marginally higher than in the previous round. The market outlook for the next six months is roughly the same as in the previous round and overall growth is expected to be solid in the period ahead. However, most industries also report that capacity limits and labour shortages are a constraint to further growth.

Compared with the previous round, growth is stable in import-competing manufacturing and building and construction, but is slowing somewhat in the export industry and the service industry. Growth is picking up in retail trade and among suppliers to the petroleum industry.

Within the export industry, there is solid growth in the process industry, fish farming and oil and energy-related enterprises. Domestically oriented manufacturing reports solid growth in all regions and in many industries. Building-related manufacturing reports particularly strong growth. The strong growth among suppliers to the petroleum industry indicates that growth in this industry is broadly based and does not depend solely on large projects such as Snøhvit and Ormen Lange which will soon be completed. A shortage of labour and building materials in the building and construction sector continues to limit growth somewhat. Reports from a number of regions indicate that commercial building is replacing residential construction as the most important driver of growth. Retail trade reports the strongest sales growth for furniture, clothing, footwear, sports equipment, cars and electrical products. In the service industry, growth is also related to a wide range of areas in the corporate and household markets. Growth is strongest in commercial and financial services.

Capacity utilisation and supply of labour

63% of companies report that they would have some or considerable difficulty in accommodating an expected or unexpected increase in demand, while 52% report that the supply of labour would limit output growth if demand increased. These percentages are only marginally lower than in the previous round. As in previous rounds, building and construction, where labour shortages are most pronounced, report the highest capacity utilisation. Many contacts in the manufacturing sector mention physical constraints such as technical production capacity and the supply of raw materials and other deliveries in addition to labour shortages. Enterprises still have plans to increase investment but at a slower pace than observed earlier in the upturn.

Employment and the labour market

There is solid growth in employment and growth is somewhat higher than in the previous two interview rounds. The service sector reports the strongest growth. Employment is expected to increase at approximately the same pace during the next three months.

Costs, prices and profitability

The projection for annual wage growth is 5% as a weighted average, compared with 4¾% in the second round of interviews in March and 4½% in the first round in January/February. This is approximately 1 percentage point higher than the projection for 2006 made at the same time last year. Building and construction and the service industry expect the highest wage growth.

Some industry segments report a considerable increase in the price of intermediate goods. This is particularly the case for manufacturing, which relies on intermediate goods from global commodity and industrial goods markets, and building and construction. For large segments of retail trade, purchase prices are still stable, are rising slightly or are falling.

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 once again report the sharpest rise in prices.

In the next 12 months, 26% of our contacts expect a higher rise in prices, 52% expect prices to rise at the same pace, while 22% expect a lower rise in prices. Expectations of a sharper rise in prices are somewhat lower than in the previous round and are now at the level prevailing at the beginning of 2006. On average, enterprises in building and construction, domestically oriented manufacturing and the service industry expect a higher rise in prices, whereas enterprises in retail trade and the export industry that expect a lower rise in prices outnumber enterprises that expect a higher rise in prices.

For the business sector overall, profitability developments have been moderately positive. Domestically oriented manufacturing and building and construction report the most substantial increase in profitability.

Region South-West

The upturn continues in Region South-West with solid to strong growth in all industries. Growth is expected to remain at the same level or fall moderately in the period ahead.

In this round, the export industry, suppliers to the petroleum industry and household services in particular report strong growth in demand.

Demand remains strong in retail trade and corporate services, as in the previous round. Growth in demand remains solid in domestically oriented manufacturing and building and construction.

Overall investment is expected to increase. Domestically oriented manufacturing plans a substantial increase in investment, whereas the service industry expects investment to remain stable.

Roughly 70% of the enterprises report some or considerable capacity problems.

Approximately 60% of the enterprises report that a lack of qualified labour is limiting their possibilities of expansion. The problems are most pronounced in building and construction and the public sector. Of the 40% who respond that the labour supply is not a problem, a number report that it may soon become a problem.

All industries except retail trade have increased employment in the past three months and expect equally high or higher employment growth in the next three month period. Oil-related industry expects the strongest growth in employment.

Continued high wage growth reflects the tight labour market. Building and construction and manufacturing, where engineers in particular are receiving historically high wage increases, expect the highest annual wage growth in 2007.

In this round, there has been a considerable increase in prices for inputs other than raw materials. Our contacts also report that prices for travel, IT services and shipyard services have risen.

The rise in selling prices has been considerable. Expectations concerning price increases ahead are somewhat lower than in the previous round. However, enterprises' expectations vary considerably.

The profitability trend is positive for all industries except domestically oriented manufacturing where profitability is stable. Profitability growth is stable or slowing in all industries except building and construction where it has picked up since the previous round.

Region South

The solid growth in Region South is broad-based. Domestically oriented manufacturing reports that the growth rate is somewhat higher than in March. Growth has slowed slightly in building and construction compared with the previous round.

The business sector is flourishing and many companies have a substantial backlog of orders. Therefore, business leaders express considerable optimism and the outlook for the future is favourable. Growth is expected to remain solid in the period ahead.

Both manufacturing and the service industry plan to reduce investment somewhat in the next twelve months compared with the investment level over the past year. Manufacturing companies report that this is primarily because investment has been high for an extended period and investment programmes have been extended as a result of longer delivery times from subcontractors. Some projects have been postponed because only a limited number of tenders have been received and prices have been high. Investment remains high in the local government and hospital sectors.

An increasing number of enterprises report capacity problems in Region South. More than half of the contacts report capacity problems. A new element in this round is that capacity utilisation is increasing in retail trade and the service industry. Compared with the previous round, an increasingly higher share of these industries now reports that the supply of labour will be a constraint on production if demand increases.

There has been solid growth in employment in building and construction, manufacturing and commercial services. Within the local government and hospital sector, employment has risen slightly in the healthcare sector.

Annual wage growth is expected to be between 5% and 6%.

Our contacts report a solid rise in selling prices. Building and construction, wood products and the process industry as well as commercial services report the sharpest rise in prices. 65% of our contacts expect price increases to remain stable during the next 12 months, while 19% expect a higher rise in prices.

Region East

Solid growth continues in Region East. All industries report solid growth during the past three months. There are no signs of a slowdown. Growth is expected to remain solid in the period ahead.

The solid growth in domestically oriented manufacturing continues. Building-related manufacturing reports particularly strong growth. The growth rate in the export industry is solid.

Growth in building and construction is solid and appears to be stronger than in the previous round. Growth is currently stronger in the commercial building sector than in residential construction. Construction growth is strong.

Growth in retail trade is solid. Growth is strongest in the furniture, clothing and footwear segments.

Corporate services report the strongest growth. This has been the case for some time. Growth is particularly solid in commercial and financial services. The strong growth is expected to continue for another six months. Growth in household services is somewhat lower than growth in corporate services.

61% of the companies report that they would have difficulty in accommodating expected or unexpected growth in demand. This percentage is higher than in the previous round, but slightly lower than in November. The problems are still most pronounced in building and construction where the supply of both labour and materials and insulation are constraints on production.

Employment has increased in the past three months, and employment growth is higher than in the previous round. Employment growth has been strongest in building and construction. Employment growth is expected to continue during the next three months but at a somewhat slower pace than in the past three months.

The projection for annual wage growth in 2007 is approximately 5¼%, 0.5 percentage point higher than in the previous round.

The rise in selling prices is solid and is higher than in the previous round. Manufacturing and building and construction in particular report that price increases have gathered pace. Fewer of our contacts expect a higher rise in prices in the period ahead.

Region North-West

The export industry reports moderate growth in volume during the past quarter. Solid growth is expected in the next six months. Domestically oriented manufacturing reports solid growth during the past quarter and expects growth to remain solid for the next six months.

Suppliers to the petroleum industry report that activity continues to increase. Growth during the past quarter has been solid and is expected to continue during the next six months. Many new offshore vessels are still being ordered for delivery several years ahead. As in the previous round, capacity problems at shipyards and their subcontractors represent a constraint to further growth.

Building and construction report solid growth again during the past quarter and are now operating at full capacity. Demand from the public sector, manufacturing and the housing market remains solid. Solid growth is also expected during the next six months. Labour shortages, however, are limiting growth.

Retail trade reports solid growth during the past quarter and expects moderate growth during the next six months. Both household and corporate services report solid growth and expect the same growth during the next six months.

All sectors except retail trade are planning to increase investment. Planned investment is highest among suppliers to the petroleum industry, particularly within shipping and equipment production.

During the past quarter, employment has increased in manufacturing, building and construction and the service industry. These industries are also expecting further growth in employment. Building and construction expect the strongest growth. Employment has been stable in retail trade and the public sector during the past three months and is expected to remain stable during the next quarter. Skilled labour is in short supply. 80% of the contacts report that they would have some or considerable difficulty in accommodating a further rise in demand.

The projection for annual wage growth in 2007 is between 4.5% and 5%, approximately the same as in the previous round.

The rise in selling prices is solid. Prices have risen in all sectors, but building and construction and corporate services report the highest price rise. Nearly 30% of the contacts expect a higher rise in prices over the next 12-month period. The share of contacts expecting a higher rise in prices is lower than in the previous round. Profitability developments have been positive in most sectors. Suppliers to the petroleum industry report the greatest improvement in profitability.

Region North

All industries in Region North report solid growth and expect the growth to continue at approximately the same pace in the period ahead.

Manufacturing reports solid growth. The high activity level in building and construction is still contributing substantially to growth in demand for products and services from domestically oriented manufacturing. The export industry also reports solid growth and that there is no indication of a slowdown. Manufacturing expects continued solid growth in the period ahead.

Building and construction report solid growth. Growth is also expected to remain solid during the next six months, and private and public non-residential building is expected to constitute a larger share of assignments.

Retail trade reports solid growth and expects growth to continue at the same pace during the next six months. Sales of building materials, cars, furniture and clothing reflect the strongest growth.

Growth continues in the service industry as well, although growth in corporate services has slowed somewhat compared with the previous round. Maritime consultancy services, staffing services and advertising report the strongest growth.

In this round, 58% of the contacts report that they would have some or considerable difficulty in accommodating expected or unexpected growth in demand. This is a decrease on the previous round, when 66% of the contacts responded in this manner.

Employment has risen in manufacturing, the service industry and retail trade, but has remained unchanged in the other sectors during the period. During the next three months, all sectors are expecting growth in employment. Retail trade is expecting the strongest growth. The share of contacts reporting that the labour supply is a constraint is still highest in building and construction, followed by the service industry and manufacturing.

The projection for annual wage growth in 2007 is 4½% - 5½%. Expectations are higher than during the same round of interviews last year, except in the service industry where expectations are at the same level.

On the whole, the rise in selling prices has been moderate to solid during the past 12 months. The rise in prices has slowed somewhat since the previous round. 45% of our contacts expect the rise in prices to remain stable in the next 12 months, while 22% expect a higher rise in prices. The share expecting a higher rise in prices is lower than in the previous round. Building and construction, the sector with the highest rise in prices for input factors, expects the highest rise in prices.

Region Central Norway

All industries report continued growth. Growth appears to be strongest in retail trade and the service industry and weakest in building and construction. The market outlook is positive, but capacity problems are a constraint to growth in a number of industries in the period ahead.

Investment appears to be increasing in all industries, with the strongest growth in retail trade.

Employment is rising in all industries except the public sector where employment is stable. Employment growth is strongest in manufacturing. It appears that public sector employment will remain stable in the period ahead, whereas all other industries are expecting growth in employment.

There is little idle production capacity and the labour supply is the most common constraint.

Expected wage growth is higher than at the same time last year. Annual wage growth is expected to be highest in building and construction and the service industry. In manufacturing and the public sector, annual wage growth projections are higher than earlier in the year.

All industries report a solid rise in prices. The rise in prices is lowest in the export industry and household services. Building and construction report a strong rise in prices which seems to be accelerating.

The service industry expects a higher rise in prices during the next year. The majority of contacts in retail trade and building and construction expect prices to continue rising at the current pace in the period ahead. Manufacturing expectations vary.

Margins appear to be growing in domestically oriented manufacturing, retail trade and the service industry. In building and construction and the service industry, a sharp increase in costs appears to have reduced margins compared with earlier this year.

Region Inland

There is solid growth in demand and output in the region. Growth has picked up in manufacturing and corporate services but has slowed somewhat in retail trade.

Growth is solid in the manufacturing sector and strongest in domestically oriented manufacturing. Suppliers to the building industry report the sharpest increase in demand.

Activity continues to increase in building and construction, but growth is moderating. Growth is stronger in the commercial building sector, e.g. buildings for retail trade, the public sector and tourism, than in residential construction.

Retail trade reports somewhat weaker growth than in the previous round. Some retail sectors report increased competition from cross-border trade. Rising sales of sporting goods and automotive products contributed to solid growth in this round.

All sectors of the service industry report solid growth, broadly in line with the previous rounds. Growth is solid to strong in commercial and financial services, tourism and the media sector.

The outlook for the next 6 months indicates continued solid growth in most industries. Manufacturing growth is expected to level off due in part to expectations of weaker growth in building and construction and uncertainty regarding export market developments.

Investment is rising in manufacturing and the local government sector and falling somewhat in the service industry.

In this round, 58% of the companies report that they would have some or considerable difficulty in accommodating an expected or unexpected increase in demand, while 38% report that labour shortages would be a constraint on production if demand increased. In the previous round, the percentages were 51% and 33% respectively.

Employment has increased in the past three months, particularly in the service industry. Expectations of employment growth in the period ahead are related in particular to this sector. The fact that a number of companies' explicitly make reservations about being able to secure personnel with the necessary qualifications is an indication of labour supply constraints.

Projections for wage growth are somewhat higher than in the previous round and are now at 4%-5%, which is also higher than at this time last year. Projections for wage growth in manufacturing, retail trade and the local government sector have increased since the previous round.

As in the previous round, the rise in selling prices is solid. Compared with the previous round, the rise in prices has accelerated in building and construction and domestically oriented manufacturing, but has slowed in corporate services. There is a strong rise in prices in building and construction.

Overall, expectations indicate a stable rise in prices during the next 12 months. Building and construction and other services expect a continued strong rise in prices. Increased wage growth is contributing to expectations of a higher rise in prices, while expectations of somewhat weaker developments are supported by the fact that considerable price increases have already been implemented.

Profitability is improving in all industries as a result of increased volume and higher prices for many goods and services.

 

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

Published 29 June 2007 12:00
Published 29 June 2007 12:00