1 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 Q3 2013 a total of 345 companies were surveyed from across the Greater Birmingham and Solihull LEP area. Survey questions are answered electronically via an independent research organisation, Research by Design.
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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 above 50 per cent indicates that more firms overall are reporting improvement on the previous month; 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 Policy advisor 0121 607 1814 d.bharier@birmingham-chamber.com Birmingham Chamber of Commerce Group 75 Harborne Road, Edgbaston, Birmingham, B15 3DH
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The BCCG Quarterly Economic Survey (QES) for Q3 2013 shows an upsurge in business confidence across the Greater Birmingham region, despite a muted performance in other key indicators. Confidence among manufacturers is higher than pre-recession levels The highest number of manufacturers since 2007 reported that they expected turnover to increase over the next 12 months. A higher number of manufacturers also reported improvements in domestic markets. The number of service firms expecting turnover and profitability to increase remained high, although largely unchanged from last quarter. Firms report improvements in export markets More firms reported that export sales and advance orders had improved compared to last quarter. This was particularly true of manufacturers, where the number of firms reporting an increase export sales continued to rise since Q4 2012. The value of exports from the West Midlands has continued its strong upward trend. In Q2 2013, the total value stood at ÂŁ6.6billion, 8.6% of the UK total. Of this, almost 70% of the total value is made up by machinery and transport exports. Labour growth continues but firms face similar recruitment difficulties The number of firms attempting to take on staff continued to rise in both sectors. Despite this, over half of firms reported recruitment difficulties. Businesses overwhelmingly pointed to skilled or managerial positions as the hardest to fill. In the West Midlands more broadly, the unemployment rate for May to July rose to 9.8%. This is despite a fall in the national rate to 7.7%.
Birmingham Chamber President, Steve Brittan
The increase in confidence reported in this quarter’s QES demonstrates the resilience and determination of Greater Birmingham to tough out harsh economic conditions. Overall, the figures for this quarter help confirm the belief that the economy is on the turn, albeit from a very low ebb. With the Autumn Statement fast approaching, however, we would encourage the government to restate its commitment to infrastructure development and capital spending. Infrastructure projects such as HS2 can provide both the initial construction stimulus as well the new opportunities through better connectivity. Aside from infrastructure investment, exporting should also be encouraged as a means of economic recovery and firms need to be made aware of the possibilities here. For firms looking to export, UKTI services at Birmingham Chamber are a very good place to start to receive free advice. The extension of the runway at Birmingham Airport comes at an opportune time for businesses looking to export. Research has shown that better point-to-point connections improve both exports and FDI. Creating the solid foundations for businesses to expand is essential at this critical juncture for meaningful recovery.
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Graph 1: Domestic Sales
Manufacturing
80
Services
70 60 50
Both sectors saw continued improvement on the domestic front for Q3. A higher proportion of manufacturers reported improvements in domestic sales, with the index figure rising to 70 from 63 last quarter, the highest since 2007. Services recorded a similar improvement, with the index score rising to 64 from 59 last quarter (graph 1).
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Graph 2: Domestic Advance Orders
Q3 2012
Q1 2013
Q3 2013
Manufacturing
80
Services
70 60
Domestic advance orders also saw an improvement for both sectors, with an index score of 68 recorded for manufacturers and a score of 63 for service firms (graph 2).
50 40 30 20 10
In the export market, a greater number of manufacturing firms reported improvements. For export sales, an index score of 67 was recorded, up from 63 last quarter. However, fewer service firms reported improvements in export markets for Q3, with the index score falling to 60 from 63 last quarter (graph 3).
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Graph 3: Export Sales
Q3 2012
Q1 2013
Q3 2013
Manufacturing
80
Services
70 60 50 40
As with export sales, the number of manufacturing firms reporting improvements in export advance orders also rose. The index score for Q3 stood at 63, up from 61 last quarter. The index score for service firms fell to 55 from 59 last quarter (graph 4).
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Graph 4: Export Advance Orders
Q3 2012
Q1 2013
Q3 2013
Manufacturing
80
Services
70 60 50 40 30 20 10 0 Q3 2007
Q1 2008
Q3 2008
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Graph 5: Labour Growth (Previous 3 Months)
Manufacturing
70
Services
60 50
The number of firms from both sectors reporting an increase in their labour force over the past three months saw an increase. For manufacturing firms, this rose to 63 from 58 last quarter. For service firms, the index score saw a more modest increase to 59 from 58 last quarter (graph 5).
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Graph 6: Labour Growth Expections (Next 3 Months)
Q3 2013
Manufacturing
70
The number of firms expecting their labour force to grow in the next three months remained largely constant. An index score of 60 was reported for manufacturers, unchanged from last quarter. For service firms, this stood at 63, up from 62 last quarter (graph 6).
Q1 2013
Services
60 50 40 30 20 10
The percentage of firms attempting to recruit saw a mild increase for both sectors. Fifty per cent of manufacturers attempted to recruit over the previous three months, compared to 45% last quarter. For service firms, 53% attempted to recruit, up from 52% last quarter (graph 7). Both sectors sought overwhelmingly to recruit for full-time positions, with 52% of manufacturers and 46% of service firms attempting to recruit staff for this position, up from 49% and 43%, respectively (graph 8).
0 Q3 2007
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Graph 7: Percentage of Firms Attempting to Recruit
Q1 2013
Q3 2013
Manufacturing
60
Services
50 40 30 20 10 0 Q3 2007
Q1 2008
Q3 2008
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Graph 8: Attempted Recruitment by Position 60
Manufacturing
50
Services
40 30 20 10 0 Part-time jobs
Full-time jobs
Temporary jobs
Permanent jobs
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Graph 9: Percentage of Firms Reporting Recruitment Difficulties
Manufacturing
90
Services
80 70 60 50
The percentage of firms reporting recruitment difficulties fell moderately from last quarter. Fifty-three per cent of manufacturing firms and 52% of service firms reported recruitment difficulties for Q3, compared to 53% and 54% last quarter, respectively (graph 9). Of the firms which reported recruitment difficulties, a majority reported that skilled/technical and managerial positions were the hardest to recruit to. Fifty-three per cent of manufacturers faced difficulties when recruiting for skills/technical positions, while 38% of service firms faced difficulties when recruiting for managerial positions (graph 10).
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Q1 2008
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Graph 10: Recruitment Difficulties by Position
Manufacturing Services
50 40 30 20 10 0 Managerial
Clerical
Un and semi-skilled
Graph 11: Recruitment Difficulties by Position (mfg) 100% 90%
Un and semiskilled
80%
Clerical Professional / managerial
70% 60% 50% 40%
Skilled manual / technical
30%
For service firms, skilled manual/technical positions were historically the hardest to recruit to, although in late 2012, the trend shifted towards professional/managerial positions as the hardest to recruit to (graph 12).
Q3 2010
60
Skilled / Technical
As with previous quarters, a similar pattern emerged as to the causes of recruitment difficulties. Skilled manual/technical positions have historically been the hardest to recruit to for manufacturers, although, this quarter’s figure would indicate a mild downward trend which began in Q1 2013 (graph 11).
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20% 10% 0%
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
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Q2 2013
Q3 2013
Graph 12: Recruitment Difficulties by Position (svcs) 100%
Un and semiskilled
90%
Clerical
80% 70% 60%
Professional / managerial
50% 40% 30%
Skilled manual / technical
20% 10% 0%
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
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Graph 13: mprovement in Cash Flow
Manufacturing
70
Services
60 50
Fewer manufacturing firms reported an improvement in their cashflow compared to three months ago, with the index figures falling to 52 from 56. By contrast, more service firms reported an improvement, with the index score rising to 53 from 49 (graph 13). The number of firms in both sectors reporting an improvement in investment plans for machinery/equipment dropped in Q3. For manufacturers, the index score fell to 61 from 64 last quarter, and for services, the index score stood at 54 down from 57 (graph 14).
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Graph 14: Investment Plans for Machinery/Equipment
Q3 2012
Q1 2013
Q3 2013
Manufacturing
80
Services
70 60 50 40 30 20
Despite a drop in the number of firms reporting an increase in investment plans for machinery/equipment, the number of firms reporting improvements in investment plans for training remained largely unchanged from last quarter. For manufacturers, the index figure stood at 64, up from 63, the highest since Q3 2012. For services, the index stood at 62, down from 63 last quarter (graph 15).
10 0 Q3 2007
Q1 2008
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Graph 15: Investment Plans for Training
Q3 2012
Q1 2013
Q3 2013
Manufacturing
70
Services
60 50 40 30 20 10 0 Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
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Graph 16: Turnover Expectations (Next 12 Months)
Manufacturing
100
Services
90 80 70
The number of firms reporting an increase in business confidence rose markedly. The index score for manufacturers reporting an improvement in turnover expectation in the next twelve months rose to 85 from 74 last quarter. This is the highest index score since 2007. Turnover expectations for service firms were largely unchanged with the index score rising to 78 from 77 last quarter (graph 16).
60 50 40 30 20 10 0 Q3 2007
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Graph 17: Profitability Expectations (Next 12 Months)
Q3 2012
Q1 2013
Q3 2013
Manufacturing
100
Services
90 80
Likewise, the number of manufacturers reporting an improvement in profitability expectations also rose to an index score of .75 from 71. Again, this is the highest level since 2007, prior to the financial crisis. For services, the index score rose to 71 from 70 last quarter (graph 17).
70 60 50 40 30 20 10 0 Q3 2007
Q1 2008
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Graph 18: Percentage of Firms at Full Capacity
Manufacturing
70
Services
60 50
The percentage of manufacturers operating at full capacity dropped to 31% from 34% last quarter. The number of service firms operating at full capacity remained unchanged from last quarter at 38% (graph 18).
40 30 20 10 0 Q3 2007
The number of firms which anticipated an increase in the price of goods/services fell from last quarter. For manufacturers, the index score fell to 57 from 64. For service firms, the index score fell to 58 from 61 last quarter (graph 19).
Q1 2008
Q3 2008
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Graph 19: Expectations of Rising Prices
Q1 2013
Q3 2013
Manufacturing
80
Services
70 60 50 40 30
A majority of firms – 41% of manufacturers and 51% of service firms – attributed price pressures to other overheads. This was followed by raw materials for 39% of manufacturers, and pay settlements for 17% of service firms (graph 20).
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Graph 20: Causes of Price Rises
Manufacturing
60
Services
50
Among the most worrying external factors for business, 27% of manufacturers and 35% of service firms reported that competition was the biggest concern for Q3. This was followed by exchange rates for 20% of manufacturers, and inflation for 19% of service firms (graph 21).
40 30 20 10 0 Pay Settlements
Raw Material Prices
Finance costs
Other overheads
Graph 21: Most Worrying External Factors
Manufacturing
40
Services
35 30 25 20 15 10 5 0 Interest Rates
Exchange Rate Business Rates
Inflation
Competition
Corporate Taxation
9 Manufacturers Q2 2013 Q3 2013 Domestic and Export Markets UK sales UK orders Export sales Export orders
Services Q2 2013 Q3 2013
63 62 63 61
70 68 67 63
59 58 63 59
64 63 60 55
58 60 45 6 49 17 29 62 58 26 16 0
63 60 50 11 52 17 20 58 53 15 10 23
58 62 52 19 43 11 27 54 19 48 21 11
59 63 53 18 46 14 22 52 28 38 20 14
Cashflow
56
52
49
53
Investment Plans Investment for machinery/equipment Investment for training
64 63
61 64
57 63
54 62
Business Confidence Turnover Profitability
76 71
85 75
77 70
78 71
% of firms at full capacity
34
31
38
38
% Pay settlements % Raw material prices % Finance costs % Other overheads
64 14 43 5 38
57 12 39 9 41
61 15 17 19 50
58 17 17 14 51
Interest rates Exchange rates Business rates Inflation Competition Corporate Taxation
3 22 16 20 26 14
7 20 15 16 27 16
9 12 16 18 29 16
8 9 14 19 35 16
62 5626
91 8751
211 37946
254 831391
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