Regional network 3/2009
- Regional Network report
Interview period: September 2009
Demand, output and market prospects
In this round, a rise in output was reported for the first time since August 2008, primarily in the retail trade and household services sectors, although also to a certain extent in the petroleum supplier sector. Corporate services remained stable over the three-month period, while output in manufacturing and the building and construction sector continued to fall. The fall seems to have been steepest in the export industry and relatively slight in domestically oriented manufacturing and the building and construction industry.
A distinctive feature of this round was the marked rise in household demand. There was clear evidence that activity in the household services sector was picking up. That pickup was primarily driven by higher demand, as confirmed by developments in retail trade. Corporate demand for goods and services seems to have remained stable compared with the previous round.
The production decline in domestically oriented manufacturing levelled off largely as a result of positive developments in the segment of the building materials industry related to refurbishment. This can partly be explained by the stimulus package for the municipalities, which has largely been used to upgrade existing buildings. Production continued to fall in the export industry, although at a somewhat slower pace than in the previous round. The processing industry was still feeling the impact of the downturn as international buyers continued to clear excess stocks. Activity remained high in the petroleum supplier industry as rising oil company demand for maintenance services contributed to growth. Building contractors reported a fall in activity related to the construction of commercial and large apartment buildings, but a rise in housing starts initiated by households. Contacts also reported that refurbishment activity has increased in both the household and the public sector. Contacts in the construction sector noted a pickup in activity in both the public and private sectors. In retail trade, some increase in turnover volume was reported for both durable and non-durable consumer goods. Activity in the corporate services sector was broadly unchanged since the previous period, while household services reported a distinct rise.
In general, regional network contacts expected moderate growth to continue in the period ahead. Contacts in manufacturing and petroleum supplier industries expected output levels to remain unchanged. Contacts in building and construction generally anticipated a marginal increase in activity, primarily driven by construction growth, while a further fall was expected in the building sector. Contacts expected that the stimulus packages would continue to provide a boost to the building and construction sector in the period ahead. Retail trade and services expected modest growth ahead.
Capacity utilisation and labour supply
In this round, 21 per cent of enterprises reported that they would have some or considerable difficulty accommodating an expected or unexpected rise in demand, while 12 per cent responded that labour would be a constraint on production if demand increased. This is about the same level as in the previous two rounds, indicating that capacity utilisation was still weak and that the labour market was not perceived to be tight.
Employment and labour market
In September, contacts reported that employment had fallen somewhat over the previous three months, at a slightly slower pace than reported in April. All private sector enterprises reported a moderate fall in employment, while public sector contacts noted a slight rise. Contacts expected overall employment to fall slightly over the next three months, but at an even slower pace. Only public sector contacts expected growth in employment ahead.
As in the previous four rounds, the level of planned investment fell again, although at a slightly slower pace than in the previous round. Contacts in all private sector industries planned a reduction in investment. The reduction was explained by continued uncertainty in the market, a shortage of liquidity and the recent completion of large-scale projects. However, the fall in investment is being curbed by some improvement in market prospects and by the temporary postponement by some contacts of necessary investment. Public sector contacts expected moderate growth in investment.
Costs, prices and profitability
Annual wage growth in 2009 was expected to be 3½ per cent, about the same as in the previous round. Wage growth was expected to be highest in the public sector and lowest in building and construction.
In September, contacts generally reported a fall in prices for the first time since February 2004. This moderate fall was a result of a decrease in prices in all enterprise-oriented industries. Household services reported a moderate rise in prices, while prices remained unchanged in retail trade. Almost half of the contacts in enterprise-oriented industries expected the rise in prices to remain unchanged ahead and the share expecting a more rapid rise in prices was greater than the share expecting a slower rise. On the whole, contacts in household-oriented industries generally expected the rise in prices to remain approximately unchanged ahead.
Operating margins were reported to be somewhat lower in all industries. For service and retail trade, however, the decrease was more moderate than in the previous round.
As from this round, region and industry weights will be changed. Previously, the regions were weighted equally with the exception of Region East, which was assigned double weight. New region weights have now been assigned based on output, employment and investment by county. Weights for summation of the various industries both at regional and national level have also been updated.
As a result of the transition to the new weights, all series have been revised somewhat in relation to previously published figures. However, this does not involve major changes. Most of the revised series have a correlation coefficient of more than 0.98 with the old series. Correlation between old and new series is slightly lower for price and investment series, but the correlation coefficient is still above 0.9. Further information about the transition to new weights will be provided in a Norges Bank Staff Memo by Wulfsberg and Martinsen to be published in autumn 2009.
With the new weights, an aggregated series comprising all industries can be formed for each region. These series are published for the first time in this round.