Manufactured goods: demand remains high

Source: Manufacturing Digital

Date :31/08/2007 08:50:08

Demand for manufactured goods remains high, but firms' expectations for output growth are noticeably weaker than they were in the first half of 2007

The CBI's August Industrial Trends Survey reported that after five months of strong expectations for increasing output, the balance of manufacturers forecasting growth dipped to +10 percent in July and has now been followed by an only slightly more upbeat balance of +13 percent in August.

The figures contrast with the average balance from February to June of +22 percent.

However, demand remained strong this month, with an increased balance of +9 percent of firms reporting that their order books were above normal.

This is the highest balance since 1995 (just above June's balance of +8%), but there are marked differences between the manufacturing sectors.

Firms producing capital goods, such as industrial machinery, engines and agricultural equipment showed a very strong balance of +30 percent reported 'above normal' order books.

Consumer goods producers enjoyed a return to healthy order book levels, from July's balance of -9 percent to +8 percent in August.

However, manufacturers of intermediate goods, including components, parts and building materials, showed a fall in demand, with last month's balance of -3 percent taking a further knock to -11 percent.

Lai Wah Co, CBI Principal Economist, said: "Manufacturers are being kept busy, and their order books are still healthy, but they forsee weaker output growth for the rest of the year.

"While price pressures in the manufacturing sector have not gone away, the Bank of England can take some comfort from the expected slowdown in output growth as recent monetary policy appears to be having its desired impact.

"With the recent turmoil in world stock markets and the risk of spillover into economic activity, the Bank should continue to hold steady on interest rates."

Across the manufacturing sector, export demand remains healthy, with order book levels considered broadly 'normal'.

The balance of -3% is still significantly above its long term average (-22 percent).

Additionally, after a dip in June, stocks have now recovered to a more than adequate level.

Since the 12-year high in May (a balance of +25%), manufacturers' confidence in their ability to raise prices has fallen, but the balance of +16% is still elevated relative to the past decade.

August 31 2007