11
The Quarterly Economic Survey (QES) is produced by Birmingham Chamber of Commerce Group (BCCG) every quarter to assess how businesses are reacting to current economic conditions using a broad range of economic indicators. Data from every UK region is compiled by the British Chambers of Commerce to form the largest business survey of its kind. The results from QES are frequently viewed by the Bank of England and the Treasury Department for a quarterly indication of business conditions. As one of the biggest Chambers in the country, the results from Birmingham Chamber Group’s QES form a vital component in understanding the economic landscape of the region and BCCG continues to use the results of QES to inform its policy positions.
The QES draws its results from questionnaire responses completed by businesses. For Q2 2013 a total of 273 companies, employing 43,572 workers, from across the LEP area were surveyed between May 20 and June 12 2013. Firms are asked questions based on a range of economic indicators. A majority of the questions allow respondents to select either “improved”, “no change”, or “declined” in relation to their opinion on the direction Results are then coded using a formula to weight each answer into an index score. A score substantially higher than 50 per cent indicates that more firms overall are showing improvement; a score of 50 means that on balance, there is no change; and a score of below 50 indicates an overall decline in performance.
David Bharier 0121 607 1814 d.bharier@birmingham-chamber.com Birmingham Chamber of Commerce Group 75 Harborne Road, Edgbaston, Birmingham, B15 3DH
2
The BCCG Quarterly Economic Survey (QES) for Q2 2013 shows that the economic performance of the Greater Birmingham region improved marginally on the previous quarter. This quarter’s QES highlights four key wider points. The position of manufacturers strengthens. A greater number of manufacturers reported improvements in export markets. Export figures for machinery and transport in the Midlands have continued to rise strongly and this is one of the major factors in this upturn. A growing number of manufacturers are also reporting improved conditions domestically. Labour growth continues to expand but more firms face recruitment difficulties. Despite a rise in the number of firms looking to take on staff, 62 per cent of manufacturers and 32 per cent of service firms reported recruitment difficulties. This suggests that one of the main causes for the 9.2 per cent unemployment rate in Birmingham is the skills deficit. Firms overwhelmingly pointed to skilled or managerial positions as the hardest to fill. Cash flow is still an issue for smaller firms. While more firms sought to boost investment plans over the next three months, the cash flow situation for many businesses has not improved. This adds further weight to the argument for the consolidations of funding streams to SMEs via the Business Bank. Competition remains the main external concern. The growing number of firms reporting that competition is biggest external concern indicates a return to the pre-recession business environment. However, inflation still features strongly as a concern. OECD figures have shown that inflation for food and energy in the UK is the highest in Western Europe.
Birmingham Chamber President, Steve Brittan
This quarter’s QES demonstrates the importance of manufacturers in boosting the region’s export performance. World class advanced engineering in the West Midlands is a real comparative advantage which should be fully exploited. However, we must not get complacent. Around 40 per cent of businesses in the region export, but those who don’t should not be afraid to use the UKTI export services at the Chamber to get their goods and services into foreign markets. QES for Q2 also highlighted the perennial problem of unemployment and the skills deficit. Recruitment figures again show the disparity between what skills certain firms need and what is on offer in the Midlands. The Chamber is looking to help remedy the skills deficit by partnering with the National Apprenticeship Service. Advanced manufacturing is blossoming in the Midlands, but we need to ensure that these cutting-edge companies are not starved through lack of skilled staff. The proposal to shift government spending from current to capital expenditure in the June Spending Review will be welcomed. Large scale capital infrastructure projects such as HS2 will be a key factor in stimulating the regional economy through the transfer of skills and technology.
Domestic Sales
3
80 70 60 50 40 30 20
Manufacturing
10
Services
0
Domestic markets fared particularly well for manufacturers. The index score for domestic sales increased to 63 from 54, the highest score since Q1 2012. Likewise, domestic advance orders rose to 62 from 53, again the highest score in over a year.
Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Domestic Advance Orders 80 70 60 50 40 30
However for service firms, domestic performance dropped somewhat from last quarter. The index score for domestic sales fell to 59 from 64, and the score for domestic advance orders fell to 58 from 64.
20 10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Export Sales 80 70 60
Exports sales and advance orders continued a modest upward trend for both sectors. For export sales, manufacturers reported an index score of 63, up from 55. Export advance orders rose to 61, up from 55.
50
Manufacturing
40
Services
30 20 10 0 Q2 2007
For service firms, the trend was similar. Export sales saw an index score of 63, up one point from last quarter. Export advance orders rose to 59, up from 57 in the previous quarter.
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Export Advance Orders 80 70 60 50 40 30 20 10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
4
Labour Growth (Previous 3 Months) 70 60 50 40 30
Manufacturing
20
Services
Labour growth for both sectors saw tangible increase this quarter, although the percentage of firms attempting to recruit remains high.
10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2012
Q2 2013
Labour Growth Expections (Next 3 Months)
70 60 50
The index score of manufacturing firms who recruited in the previous three months stood at 58, one point lower than last quarter. For service firms, this score was 58, showing no change.
40 30 20 10 0 Q2 2007
The score for manufacturers expecting their labour force to grow stood at 60, up from 58 in the previous month. Service firms also showed a similar improvement, rising to 62 from 59.
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Percentage of Firms Attempting to Recruit 60 50 40 30
The percentage of manufacturers attempting to recruit almost doubled from the previous quarter to 62 per cent from 32 per cent. For service firms, a similar improvement was also made, with the percentage of firms attempting to recruit rising to 52 per cent from 40 per cent.
20
Manufacturing 10
Services
0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Attempted Recruitment by Position 60
Manufacturing
50
Services
40
For both sectors, the majority of attempted recruitment was for full time jobs, with 49 per of manufacturers and 43 per cent of service firms attempting to recruit staff for this position.
30 20 10 0 Part-time jobs
Full-time jobs
Temporary jobs
Permanent jobs
5
Percentage of Firms Reporting Recruitment Difficulties
90
Manufacturing
80 70
Services
60 50 40 30 20 10
The percentage of firms reporting recruitment difficulties continued the sharp upward trend seen in both sectors. For manufacturers, 62 per cent reported difficulties. This is almost double from last quarter and the highest amount since Q3 2008. The percentage of service firms facing recruitment difficulties rose in the same fashion, with 54 per cent reporting problem, the highest since Q1 2008.
0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Recruitment Difficulties by Position 70
Manufacturing
60
Services
50 40 30 20 10
As with previous quarters, a similar pattern emerged as to the causes of recruitment difficulties. 58 per cent of manufacturers reported that skilled/technical jobs were the hardest to recruit to. This continues a historic trend whereby skilled jobs constitute on average over half of firms’ recruitment difficulties.
0 Skilled / Technical
Managerial
Clerical
Un and semiskilled
Graduates
Skilled Admin
Recruitment Difficulties by Position (Manufacturers) 100%
90%
Un and semiskilled
80%
Professional / managerial
70%
Clerical
60% 50% 40%
For service firms, 48 per cent said managerial positions were the most problematic continues a growing trend of recruitment difficulties for professional/managerial staff. However, this can be contrasted to Q1 2012, where skilled manual staff were overwhelmingly the hardest positions to recruit to.
Skilled manual / technical
30% 20% 10% 0%
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Recruitment Difficulties by Position (Service Firms) 100%
Un and semiskilled
90% 80%
Clerical
70% 60%
Professional / managerial
50% 40%
Skilled manual / technical
30% 20% 10% 0%
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
6
Improvement in Cash Flow 70
While the cashflow situation differed somewhat for service firms and manufacturers this quarter, investment plans saw a similar upward trend for both sectors.
For manufacturers, the cash flow score rose to 56, up from 52 last quarter. For service firms, the index score stood at 49, down from 60 and the lowest since Q3 2011. The fall below the 50 per cent benchmark indicates that a majority of firms reported either no change or deterioration in the situation from last quarter.
60 50 40 30
Manufacturing
20
Services
10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2012
Q2 2013
Investment Plans for Machinery/Equipment 80 70 60 50 40 30
Investment plans for manufacturers saw a mild improvement from last quarter, with an index score of 64 for machinery investment plans (up from 62) and a score of 63 for training investment plans (up from 55).
20 10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Investment Plans for Training 70 60
Service firms saw an index score of 57 for equipment investment plans (down from 59) and a score of 63 for training investment plans (up from 59).
50 40 30
Manufacturing 20
Services
10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
7
Turnover Expectations (Next 12 Months) 100
Business confidence among manufacturers remained reasonably high this quarter, although service firms, while still above the 50 per cent benchmark, saw a noticeable drop from last quarter.
Manufacturing
90
Services
80 70 60 50 40 30 20 10
For manufacturers, the index score for turnover expectations increased to 76 from 74. For profitability expectations, this score decreased slightly to 71 from 73.
Service firms displayed a higher degree of pessimism, with the index score for turnover expectations falling to 77 from 82, and profitability expectations falling to 70 from 81 last quarter.
0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2012
Q2 2013
Profitability Expectations (Next 12 Months) 100
Manufacturing
90
Services
80 70 60 50 40 30 20 10 0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Percentage of Firms at Full Capacity
8
70 60 50 40 30
Manufacturing 20
Services 10
The percentage of manufacturers operating at full capacity increased to 34 per cent from 29 per cent last quarter. This is only slightly higher than the recession levels from Q1 2008 to Q4 2009. In a similar trend, 38 per cent of services firms reported that they were at full capacity, compared to 35 per cent last quarter.
0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2012
Q2 2013
Expectations of Rising Prices 80 70 60 50 40 30
Manufacturing
20
Services
10
Q1 saw a mild increase in firms expecting prices to rise. An index score of 64 was reported for manufacturers, up from 63. For services, a score of 61 was reported, the highest since Q3 2008.
0 Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Causes of Price Rises
For manufacturers, 43 per cent reported that the cost of raw materials was the source of rising prices, followed by 38 per cent who cited “other overheads� as the main cause. For services, other overheads were seen overwhelmingly as the cause of higher prices above other factors.
60
Manufacturing
50
Services
40 30 20 10 0 Pay Settlements
Raw Material Prices
Finance costs
Other overheads
Most Worrying External Factors
Both sectors reported that competition was the biggest external concern (26 per cent of manufacturers and 29 per cent of services). This was followed by exchange rates for manufacturers (22 per cent) and inflation for service firms (18 per cent).
35 Manufacturing
Services
30 25 20 15 10 5 0 Interest Rates
Exchange Rate
Business Rates
Inflation
Competition
Corporate Taxation
Better Industrial Relations
Improved Cash Availability
9
Manufacturing Q1 2013 Q2 2013 Domestic and Export Markets UK sales UK orders Export sales Export orders
Services Q1 2013 Q2 2013
54 53 55 55
63 62 63 61
64 64 62 57
59 58 63 59
59 58 48 9 43 14 33 32 64 21 0 14
58 60 45 6 49 17 29 62 58 26 16 0
58 59 40 17 41 12 30 26 26 41 15 7
58 62 52 19 43 11 27 54 19 48 21 11
Cashflow
52
56
60
49
Investment Plans Investment for machinery/equipment Investment for training
62 55
64 63
59 59
57 63
Business Confidence Turnover Profitability
74 73
76 71
82 81
77 70
% of firms at full capacity
29
34
35
38
% Pay settlements % Raw material prices % Finance costs % Other overheads
63 11 44 10 34
64 14 43 5 38
55 14 29 11 46
61 15 17 19 50
Interest rates Exchange rates Business rates Inflation Competition Corporate Taxation
3 21 16 16 22 12
3 22 16 20 26 14
6 13 15 18 24 13
9 12 16 18 29 16
80 10343
62 5626
217 8485
211 37946
Labour Markets Employment in the last quarter Expectations for the next quarter % attempted recruitment If yes:
% recruitment difficulties If yes:
Prices/costs Expectations of rising prices Price pressures from:
% Part-time jobs % Full-time jobs % Temporary jobs % Permanent jobs % Skilled/technical % Professional/managerial % Clerical % Semi/unskilled
External Factors
Number of firms Number of employees