Market Intelligence Report
CLA / Smiths Gore Rural Economy Index 1Q | 2014 Key points • • •
The recovery in the rural economy is firmly established, with signs that it is spreading from non-farming businesses to the farming sector. Despite sales falling over the past 6 months, farming businesses expect sales and profits to be higher in the next 12 months. Investment expectations for the year ahead are increasingly positive. Seven of our eight indicators are positive. Non-agricultural businesses continue to recover and expect growth. Over half of the businesses reported higher sales over the past six months. The businesses have positive sales, profit, investment and employment expectations. All of our eight indicators are positive.
70% 60% 50% 40% 30% 20% 10% 0% -10% -20%
Actual sales over the past 6 months
Business enquires over the past 6 months
Profitability over the next 12 months
Optimism for your business over the next 12 months
Agriculture
Figures shown are net balances and show the proportion (or %) of businesses reporting a rise minus those reporting a fall.
Expected sales in the next 12 months
Expected order book in the next 12 months
All businesses excluding agriculture
Expected investment in the business in the next 12 months
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
1Q2012 2Q 3Q 1Q2013 2Q 3Q 1Q2014
-30%
Expected employment in the business in the next 12 months
What’s happened over the last six months Actual business performance
Actual business enquiries
Fewer agricultural businesses reported higher sales – the weakest levels since 2012 – and more reported falling sales (net balance down to -19% from +6%). Over half of the non-agricultural businesses reported higher sales - the highest level since 2012 - the net balance remains strongly positive (+38% from +44%).
Enquiries continue to rise for both farming businesses (net balance up to +14% from +10%) and non-farming businesses (net balance rising to +65% from +38%).
Actual sales over the past six months
Business enquiries over the past six months
Figures are net balances
Figures are net balances
50% 40%
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
30% 20% 10% 0% -10% -20% -30% 1Q2012
2Q
3Q
Agriculture
1Q2013
2Q
3Q
All businesses excluding agriculture
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
1Q2014
1Q2012
2Q
3Q
Agriculture
1Q2013
2Q
All businesses excluding agriculture
3Q
1Q2014
What businesses expect over the next 12 months The level of business confidence
Projected business performance
The perception of confidence or optimism is a good indicator of the short-term outlook for businesses.
The Index also looks at how businesses are expecting to perform.
The farming sector continues to recover from its dip in 2012 and is now optimistic about the future, with a net balance of +42%, up from +36%. The businesses are at their most optimistic since our survey started. The non-farming businesses remain very optimistic and have fully rebounded from the drop in confidence in early 2013 (net balance of +65%, down slightly from +68%). Optimism for your business over the next 12 months Figures are net balances
80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% 1Q2012
Optimism is feeding through into higher sales expectations. Agricultural businesses expect sales to be higher, continuing the positive expectations from the end of 2013 (+32% from +34%), and so do non-agricultural businesses (+50% from +62% in Q3). Expected sales in the next 12 months Figures are net balances 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% 1Q2012
2Q
3Q Agriculture
1Q2013
2Q
3Q
1Q2014
All businesses excluding agriculture
These trends follow through into expected order books. Farming businesses expect orders to be higher in the next 12 months (net balance up to +27% from +20%). And more non-agricultural businesses expect growing order books (net balance up to +54% from +50%). 2Q
3Q
1Q2013
2Q
3Q
1Q2014
Expected order book in the next 12 months Figures are net balances
Agriculture
All businesses excluding agriculture 50% 40% 30% 20% 10% 0% -10% -20% -30% 1Q2012
2Q
3Q Agriculture
1Q2013
2Q
3Q
All businesses excluding agriculture
1Q2014
Future Trends – Profitability, investment and employment
Expected investment in the business in the next 12 months Figures are net balances 50%
Profitability
40%
Agricultural businesses continue to expect profitability to be higher in the next 12 months (net balance rising to +14% from +11%). Profit expectations for non-agricultural businesses remain strongly positive (+42% from +48%).
30% 20% 10% 0% -10%
Expected profitability over the next 12 months
-20%
Figures are net balances
-30% 1Q2012
2Q
3Q
1Q2013
2Q
3Q
1Q2014
50% Agriculture
40% 30%
Employment
20% 10% 0% -10% -20% -30% 1Q2012
All businesses excluding agriculture
3Q
1Q2013
2Q
3Q
1Q2014
The signs of optimism in terms of employment we reported in 3Q2013 continue. Farming businesses expect to employ more staff in the next 12 months (net balance +11% from -2%) and more non-agricultural businesses now expect to employ more people (+35% from +20%). Expected employment in the business in the next 12 months
Agriculture
All businesses excluding agriculture
Investment One of the biggest changes is the positive rise in investment expectations by agricultural businesses (up to +36% from +6%). Non-agricultural businesses have also become more positive about business investments, with the net balance at its highest level since we started the survey (net balance is up to +46% from +26%).
Figures are net balances
40% 30% 20% 10% 0% -10% -20% -30% 1Q2012
2Q
3Q Agriculture
1Q2013
2Q
All businesses excluding agriculture
3Q
1Q2014
Taking part in the Index Any business located in a rural area can take part. It takes less than 2 minutes at your computer and costs nothing; in return, you will be sent and can use the results to support your business or sector. We only ask that the results are referred to as the CLA / Smiths Gore Rural Economy Index. So make a cup of tea, click on https://www. surveymonkey.com/s/cla_smithsgore_ruraleconomyindex_2014Q2 and take part!
About the Rural Economy Index Interpreting net balances The Country Land and Business Association and Smiths Gore have developed the Rural Economy Index (REI) to provide a quarterly insight into the business environment of the rural economy. A sample of agricultural and non-agricultural businesses from all regions in England and Wales are surveyed. The non-agricultural businesses include: Mining, quarrying, renewable energy or waste management
Hotels, accommodation, restaurants or food service
Public sector administration, education or health
Manufacturing
Transport, storage or communications
Other services (sports, arts, entertainment, recreation)
Construction
Financial services or property
Other
Agricultural and non-agricultural businesses are analysed separately as the sectors have different drivers. The businesses are asked 8 questions about‌
...your actual sales over the past 6 months
...business enquiries over the past 6 months
...your profitability over the next 12 months
...your optimism for your business over the next 12 months
...your expected sales in the next 12 months
...your expected order book in the next 12 months
...your expected investment in the business in next 12 months
...expected employment in the business in next 12 months
As well as showing percentages of businesses reporting higher or lower sales, the REI uses net balances to show the direction and scale of change in indicators. Net balance shows the proportion of businesses reporting a rise in actual sales (or optimism or investment etc) minus those reporting a fall. For example, +14% of agricultural businesses reported higher sales and -33% lower, so the net balance is -19%. This can then be compared with previous quarters.
For more information contact:
Dr Charles Trotman t 020 7235 0511 e charles.trotman@cla.org.uk
Rupert Clark Head of Management t 01798 345980 e rupert.clark@smithsgore.co.uk Dr Jason Beedell Head of Research t 01733 866562 e jason.beedell@smithsgore.co.uk