Norges Bank

Regional network report

Regional network 2/2009

Series:
Regional network report
Number:
2/2009

Interview period: April 2009

Summary

Demand, output and market prospects

The decline in output witnessed in the past two rounds has continued. With the exception of household services, where production edged up, all industries reported a fall in production. For the first time since 2003, the petroleum supplier sector also reported a fall in production. The decline has been strongest for the export industry.

The fall in production reflects reduced corporate demand as a result of uncertain market prospects and a lack of funding. The export industry reported a steeper fall in this round than in the previous round owing to a further decline in activity among trading partners in the first quarter. Household demand seems to be broadly unchanged.

A marked fall in production in domestically oriented manufacturing primarily reflects lower demand for building materials. In the export industry, a sharp fall in the processing industry and suppliers to the car industry was reported. For fish exports and fish farming, growth has been solid. The decline in the petroleum supplier industry partly reflects difficulties in funding new projects and the postponement of some projects owing to low oil prices. In the building and construction industry, commercial building activity declined and residential building activity remained low despite signs of a pickup in home sales. The decline in retail trade activity softened somewhat after falling rapidly in the previous round. Demand for consumer durables had edged down on the whole, while demand in the grocery trade showed steady growth. Corporate services showed a moderate slowdown in activity, while household services were on the rise.

Looking ahead, contacts expected a slower fall in output than seen over the past 3 months, and to a lesser extent than expected in the previous two rounds. In both domestically oriented manufacturing and the export industry, contacts expect production to fall at a somewhat slower pace. In the petroleum industry, contacts expected a continued decline in activity because oil companies were postponing and reducing investment activity. Contacts in the building and construction industry expected a slight fall in the level of activity. Several of our contacts expected the stimulus package to result in an increase in public construction and renovation projects, but not to the extent that this would offset the sharp slowdown in private sector building activity – particularly in commercial building activity. In retail trade, contact expected the level of sales to remain virtually unchanged, while activity in the service sector was expected to continue to slope gently downwards.

Capacity utilisation and supply of labour

Enterprises’ capacity utilisation and the supply of labour were approximately unchanged in April compared with January. 22 per cent of enterprises reported that they would have some or considerable difficulty accommodating a rise in demand. Reduced demand was reported to be the most important reason for the low level of capacity utilisation.

The labour market was slack according to our contacts, and only 10 per cent responded that labour would be a constraint on production if demand increased. This is the same level as in January, which was the lowest observed since the series was started in 2005.

Employment and the labour market

In April, contacts reported a moderate fall in employment over the past 3 months at about the same pace as towards the end of 2008. Employment had fallen markedly in manufacturing and building and construction. In retail trade and the service sector, employment had fallen to a lesser extent, while public sector employment had edged up. Contacts expected employment to continue to show a moderate fall over the coming 3 months, although less so than in the previous 3-month period. Manufacturing was expected to show the sharpest decline in employment ahead. Contacts expected the fall in employment to slow in building and construction, while employment in the public sector was expected to show moderate growth.

Investment

As in the previous three rounds, the level of planned investment projects fell again, at a slightly faster pace than in the previous round. Contacts in manufacturing and retail trade planned a marked reduction in investment, while the decline was expected to be more moderate in the services sector. The fall in investment was explained by uncertainty in the market, a shortage of liquidity and the recent completion of large-scale projects. Contact enterprises in the public sector expected moderate investment growth, attributed by a number of contacts to Government measures. A number of the public sector enterprises in the network also referred to higher spare capacity among suppliers, for instance within the building and construction industriy. Some municipalities, however, expected a decline in investment as a result of reduced tax revenues.

Costs, prices and profitability

Wage growth in 2009 was expected to be 3 ½ per cent, which is moderately lower than in the previous round. A number of central wage settlements have been completed since the previous round and have probably provided a more solid basis for contacts’ estimates.

The rise in prices has slowed further since the previous round and was reported to be very moderate in April. Retail trade contacts reported the same moderate rise in prices as in the previous round. The rise was slowing in the other industries. Almost half of the contacts were expecting a slower rise in prices in the coming year, with the exception of domestically oriented manufacturing, which reported a marked and accelerating rise in prices.

Operating margins were reported to be somewhat lower in all industries. The most pronounced change was reported by petroleum suppliers, who reported growth in profitability over the past 3 months. The decline in profitability has been sharpest in domestically oriented manufacturing and retail trade and somewhat less pronounced in the other industries.

Special focus – use of foreign labour

The share of enterprises using foreign labour rose in all industries – except retail trade – from 2006 to 2008. There was no change from 2008 to 2009, however, and the share has remained broadly unchanged at 50 per cent.

Approximately 10 per cent of the contact enterprises reported in April that they planned to increase the number of non-Norwegian employees over the next twelve months. This is a sharp reduction on the around 50 per cent that had similar plans over the past three years. This time 20 per cent of the contacts responded that they would reduce the number of non-Norwegian employees, while 70 per cent would keep the number unchanged.

Updated information obtained in the last week of May

In the last week of May, updated information was obtained from 65 (1) contacts in manufacturing, consumer durables and services. Special emphasis was given to developments in the order situation and employment plans for 2009. The information largely confirmed the picture from the April round of interviews.

Expectations of increased activity as a result of the Government’s measures seem to be materialising. A number of contacts – in manufacturing, retail trade and services industries – oriented towards construction and building renovation report that new orders are stable or rising slightly. A number of these see possibilities of increasing employment somewhat ahead. However, expectations of a further fall in private sector housing and commercial building starts were also confirmed. If private sector building starts do not pick up, a number of contacts – particularly in the building materials industry – will have to prepare for further reductions in the work force further out in 2009.

In energy-intensive industries – which have been hard hit by the reduction in global demand – the fall in demand seems to be levelling off. Some have even recorded a slight increase in new orders, possibly because customers have now depleted their stocks and are starting to submit new orders again. The majority of contacts expect to be able to maintain stable employment with the current rate of incoming orders  and the expected market prices..

Petroleum industry suppliers report that new orders are low. Order backlogs have been reduced, but contacts are not concerned about activity in 2009. Employment is therefore expected to be stable this year, but contacts are concerned with regard to 2010 and 2011.

Households continue to choose moderate priced alternatives. Last year’s boat models, second-hand cars and cheap furniture are selling briskly and it appears more consumers are only replacing white goods rather than complete kitchens. Recent increase in new car sales, however, indicate a higher number of new registrations in the coming three months  than in the same period in 2008. In industries supplying consumer durables, employment is expected to be stable or to edge down.

Reports from the tourist industry confirm that course and conference services are being adversely affected by customers’ cost cuts. So far, hotel reservation statistics also indicate that external demand will be lower this summer than in 2008. Some reduction in employment is expected, primarily owing to low demand for course and conference services.

Footnotes

  1. Selected from all 7 regions. For the purpose of anonymity, contact names are not published.

 

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

Published 10 June 2009 14:00
Published 10 June 2009 14:00