Regional network 4/2007
- Regional Network report
Interview period: August 2007
Demand, output and market outlook
Solid growth continues to be reported in all industries, but growth appears to have moderated compared with the previous round. The market outlook for the next six months indicates continued solid growth. Contacts expect a somewhat slower growth rate now compared with expectations in the previous round. A number of industries report that a scarcity of available capacity has been a constraint on growth and will limit opportunities for growth in the period ahead. Slower growth than in the previous round is reported among suppliers to the petroleum industry, domestically oriented manufacturing and the building and construction industry. In the export industry, retail trade and the service industries, growth appears to be gathering pace.
In domestically oriented manufacturing there is growth in many different industries, but generally solid growth among manufacturers of various types of building materials. Growth in the export industry is reported to be strongest for shipbuilding, engineering and other offshore-related industry. Growth among suppliers to the petroleum industry is reported in this round to be considerably weaker than earlier this year. This is due to a drop in activity after the large Ormen Lange and Snøhvit projects peaked simultaneously, but growth is expected to pick up again. The building and construction industry also reports lower growth in this round, but this is largely due to a shortage of labour. The reports indicate that there will be a decline in residential construction, but a rise in commercial construction in the period ahead. Retail trade reports stronger growth in this round. Sales of building materials continue to grow, and strong growth in the sale of cars, furniture and electronics is reported. The service industries report solid growth, and it is still strongest in corporate services. Growth in financial and business services remains solid, but growth is also reported for the hotel and transport industries. A substantial share of contacts report also here that a shortage of labour is a constraint on growth.
Capacity utilisation and supply of labour
61% of the contacts state that they would have difficulty in accommodating demand growth. This is approximately the same as in the two previous rounds, and indicates that the situation with respect to available capacity is now stable. Half of the contacts report that the supply of labour will limit any increase in production. Here, too, the situation is stable, and the tightening of the labour market appears to have come to a halt.
Employment and the labour market
Employment appears to be growing at the same pace as earlier this year. Growth in services is still strongest. Growth at the current pace is planned for the next three months, but many contacts say there is uncertainty in this respect because of problems with the labour supply.
Costs, prices and profitability
The annual wage growth estimate for the current year is 5½% as a weighted average. The estimate has increased by almost half a percentage point compared with the previous round, and is higher for all industries in this round. The estimate is more than one percentage point higher than at the same time last year. Building and construction and the service industry expect the highest wage growth.
Selling prices have exhibited solid growth in the past twelve months, and the rise in prices appears to be gathering pace. Growth appears to be strongest in building and construction and corporate services. Fewer than earlier this year believe that prices will continue to rise. In this round, 22% of contacts expect a stronger rise in prices in the coming 12 months, while 32% believe prices will rise more slowly. There are most contacts expecting stronger growth in retail trade, and fewest in building and construction. The largest change compared with earlier this year is in building and construction, where considerably more contacts expect the rise in prices to moderate.
Profitability is growing in all industries, but growth is reported to be slower than earlier this year. Growth is strongest among suppliers to the petroleum industry, while developments are weakest in retail trade and the export industry.
Growth in Region South-West remains broadly solid, but the growth rate is somewhat lower than in the previous round. The market outlook for the next six months is favourable for all business sectors, however.
Petroleum-related manufacturing has reported very solid growth for the past few years. However, there has been a temporary negative development in the last three months, largely as a result of large projects that have peaked simultaneously. Only moderate growth is expected during the next six months.
The solid growth in building and construction has continued also during this period. However, virtually zero growth is expected for the next six months. Despite signals of less speculation in the housing market, demand remains high. The constraint appears to be capacity.
Solid growth continues to be reported by domestically oriented manufacturing, the export industry, services and retail trade, which are all experiencing solid to strong growth this round. Growth in the period ahead is expected to be approximately the same.
Overall investment is expected to increase somewhat. However, growth is weaker than in the previous round, and several industries expect to reduce investment. Retail trade continues to push up the investment level in this round.
70% of the enterprises report some or considerable capacity problems. 64% of all contacts indicate the labour supply as a problem. Over half of the 36% who respond that the labour supply is not a problem state that it may soon become a problem.
All industries report stable or positive employment growth in the past three months. This is expected to continue. Many companies in manufacturing and building and construction fear that the labour market is so tight that they will not be able to accomplish their employment plans.
The average expected wage growth in 2007 is 5¾%. There are major differences between industries. Petroleum-related industry and building and construction have the highest expectations.
In this round there has again been a considerable increase in prices for inputs.
Selling prices continue to rise. Building and construction and corporate services are showing the strongest growth rates. On balance, the rise in prices is expected to slow in the period ahead.
Profitability is increasing in all business sectors except domestically oriented manufacturing. However growth in margins is declining. With the exception of retail trade and corporate services, all industries are exhibiting either stable or narrower margins.
Activity continues to increase in all industries. Growth is strongest among suppliers to the petroleum industry and in retail trade. Manufacturing reports large order backlogs, particularly in the offshore segment.
The market outlook is positive, and the growth rate is expected to remain solid during the next six months. However, the strong Norwegian krone and the possibility that it may weaken their market position is creating uncertainty in the export industry.
Both manufacturing and the local government and hospital sectors plan to increase investment in the next twelve months compared with the level over the past year. Investment in retail trade and service industries is stable. Investments are being made in capacity expansion, upgrading of production equipment, product development and rationalisation measures. The areas in focus in the local government sector are youth, care and culture.
Capacity problems are increasing steadily. 45% of companies report that they would have some or considerable problems in accommodating an increase in demand. This is somewhat higher than in the winter. Capacity utilisation is increasing in retail trade and services.
There has been pronounced employment growth in building and construction. In manufacturing and retail trade, employment growth is reported as being somewhat lower than in the previous round. Developments in the local government and hospital sector are stable.
Annual wage growth is expected to be between 5% and 6%.
All in all, industries report a solid rise in prices. particularly in building and construction and domestically oriented manufacturing. Next year, 36% of companies expect a higher rise in prices and 6% a slower rise.
Solid growth continues in Region East. All industries report solid growth with the exception of the building and construction sector which has not seen growth for the past three months. Growth is expected to remain solid in the period ahead.
Manufacturing activity remains solid. Our contacts in both domestically-oriented manufacturing and the export industry report increased production during the past three months. Growth is somewhat stronger in the export industry than in domestically oriented manufacturing.
Production in building and construction is at an extremely high level, and the sector does not appear to be exhibiting growth any longer. The impression given is that it is not demand, but the willingness and ability to grow that is a constraint on further growth.
Growth in retail trade remains solid, and is strongest for electrical items, cars and sports equipment.
The service sector, especially corporate services, reports solid growth. As previously, the strongest growth has been exhibited by business services.
50% of the companies report that they would have difficulty in accommodating expected or unexpected growth in demand. This is lower than in the previous round, but approximately the same as in the two rounds before that. Problems are still greatest in the building and construction sector and services.
Employment have increased in all industries during the past three months. Compared with the previous round, growth has been stronger in services, retail trade and the public sector, but weaker in manufacturing and building and construction. Growth has been strongest in services. During the next three months, growth is expected to take place at roughly the same pace as during the past three months.
Overall, annual wage growth in 2007 is estimated by contacts to be just under 5¾% in this round, more than ½ percentage point higher than in the previous round. Manufacturing in particular, and to some extent services and the public sector, expect higher wage growth than in the previous round.
The rise in selling prices is the next highest recorded in the region. However, it is declining somewhat from the peak in the previous round. It is primarily manufacturing and household services that report a weaker price rise. Corporate services are the only sector reporting a stronger rise in prices. A moderately lower increase in prices is expected in the period ahead.
Domestically oriented manufacturing in Region North-West has exhibited solid growth in volume in the last three months, and the growth rate is expected to remain solid for the next six months. The export industry reports strong growth in the past three months, and expects growth to remain solid during the next six months.
Suppliers to the petroleum industry report that activity is still at a very high level. They report that the last quarter's growth in volume has been strong and that they expect continued solid growth during the next six months. Building and construction reports moderate growth in the past quarter, but expects solid growth during the next half year.
The retail sector reports solid growth during the past three months and expectations that it will continue thus during the next six months. The service sector reports solid growth for both household and corporate services in the past quarter. Service industry growth during the next six months is expected to be a little slower, on balance, but to remain solid.
82% 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 building and construction and manufacturing. There are reports of major problems in procuring qualified labour, particularly in building and construction and manufacturing.
All sectors report intentions to increase investment in the immediate future. As previously reported, offshore shipbuilders are planning the largest increases.
Employment has increased in all sectors except the public sector, and is expected to increase further in the period ahead in the same sectors.
The average projection for annual wage growth in 2007 is 5½ - 6%. This is over one percentage point higher than reported a year ago. Wage growth is expected to be particularly strong in manufacturing.
Our contacts report a continued solid rise in selling prices. Prices have risen in all sectors, but most in corporate services. The share of contacts that expect prices to rise at a faster pace during the next 12 months is now 36%, an increase of 6 percentage points compared with the previous round.
Operating margins have improved generally for all sectors except retail trade. The offshore industry reports the most positive developments.
All industries in Region North report growth in demand and output, and expect the growth to continue at approximately the same pace in the period ahead.
Domestically oriented manufacturing is growing strongly as a result of a high level of activity in the construction and fish-farming industries. Export industry growth is solid, but many contacts in Region North report that enterprises do not have the capacity to meet the strong growth in market demand. Growth is expected to continue at approximately the same rate during the coming period.
The building and construction industry reports a high level of activity and generally strong demand growth. Because they are operating at virtually full capacity, contacts are unable to translate the strong demand into a higher rate of production and activity. Solid growth is also expected during the next six months.
Retail trade reports strong growth which is expected to continue at the same pace during the next six months. Strong growth is reported in all segments in this round.
Growth continues in the service industry as well and, for corporate services, at an increasing pace compared with the previous round. Growth in household services remains unchanged. Growth in the next 6 months is expected to remain solid, and to be strongest in business services.
In this round, 64 per cent 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 58% of the contacts responded in this manner.
Except in building and construction, employment growth is declining in all parts of the private sector in this round compared with the previous report. During the next three months, all sectors are expecting growth in employment, particularly manufacturing and the service sector. The share of contacts reporting the labour supply as a constraint is still highest in building and construction, followed by retail trade and the service industry.
The projection for annual wage growth in 2007 is 4½ - 6%. Expectations are higher than during the same round of interviews last year, except in the service industry where they are at the same level.
The year-on-year rise in prices is 4%. The rise in prices has edged up since the previous round due to a somewhat higher rise in prices in the services sector. 56 per cent of our contacts expect the rise in prices to remain stable in the next 12 months, while 6 per cent expect them to rise at a faster pace. The share expecting a higher rise in prices is lower than in the previous round.
Region Central Norway
There is moderate to solid growth in all industries. Growth appears to be strongest in retail trade and services, while the building and construction sector reports only moderate growth. The market outlook reflects expectations of continued growth, but capacity problems are a growth constraint in a number of industries. In building and construction, growth appears to be coming to a halt.
Investment is expected to continue growing in all industries and the local government sector.
Employment is growing in local government and in all industries except the building and construction industry, where growth now appears to have levelled off.
There is little idle capacity and the labour supply is the most common constraint. However, the supply of labour for the building and construction industry appears to have improved somewhat now.
Wage growth expectations are substantially higher than at the same time in 2006, and also higher than earlier this year. Expectations are 5½ - 6% on average. Growth expectations are highest for services, and lowest in local government. Expectations for retail trade are distinctly higher than earlier this year.
All in all, industries report a solid rise in prices. Corporate services and building and construction report the strongest growth. Growth appears to be on a rising trend for all service sector activities.
The rise in prices is expected to remain unchanged in retail trade and services in the coming year. There are now expectations of a slower rise in prices in domestically oriented industry and building and construction. Expectations in building and construction have changed most, and the consensus is now that growth will be slower in the coming year.
Operating margins in all industries appear to be stable or growing. Given growth in volume, this implies solid profitability growth. The margins appear to be widest in domestically oriented industry and among suppliers to the petroleum industry. Margins appear to be improving in manufacturing and building and construction.
On the whole, Region Inland reports solid growth in demand and production. Growth has declined in manufacturing but has picked up somewhat in retail trade.
Growth in domestically oriented manufacturing is reported in this round to have declined. The main reason is reports from manufacturers of building materials of a levelling off and in some cases a decline in sales. The export industry reports a slight decline in volume, largely due to increased demand in the Norwegian market.
Activity continues to increase in building and construction, but growth is moderating. Growth is increasing in the commercial building sector, e.g. buildings for retail trade, the public sector and tourism, whereas residential construction is levelling off.
Retail trade estimates that growth is somewhat stronger than in the previous round. Increased sales of cars and building materials are contributing to the growth.
All sectors of the service industry report solid growth, broadly in line with previous rounds. Growth is solid to strong in business and financial services and transport. Some tourism segments also report solid growth this year.
The outlook for the next 6 months indicates continued 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.
The level of investment is rising in manufacturing, but falling in retail trade.
The labour market has become even tighter. 56% of companies report in this round that they would have some or considerable difficulty in accommodating an expected or unexpected increase in demand, while 45% report that the supply of labour would limit output growth if demand increased. In the previous round, the percentages were 58% and 38% 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.
The estimate for annual wage growth has risen substantially in this round, and now lies at 5-6%, which is also somewhat higher than in the same round in 2006. Wage growth is strongest in business services and building and construction.
As in the previous round, the rise in selling prices is solid. The rise in prices in manufacturing has declined compared with the previous round.
Overall, expectations indicate a somewhat slower rise in prices during the next 12 months. One important reason is the strong rise in prices in building materials and building in the past year, combined with expectations of a slightly falling market. Some service segments expect a stronger rise in prices due to higher wage growth.
Profitability is increasing in services and retail trade, while remaining stable in manufacturing.