LINE : Dampened optimism in manufacturing

The business tendency survey for the fourth quarter of 2019 shows a positive but decreasing development in total output compared to the third quarter of 2019. The producers of intermediate goods report growth in total output while producers of capital goods report unchanged production level. Producers of consumer goods now report reduced activity level in the third quarter.

The industrial leaders report the same level of employment in the fourth quarter as in the previous quarter. The producers of intermediate goods and capital goods report increased employment while the producers of consumer goods are reporting decreased employment.

Figure 1. Production and employment for manufacturing. Changes from previous quarter. Smoothed seasonally adjusted

Lower level of new orders, but increased export prices

There was an overall decline in new orders in both the domestic and export market in the fourth quarter of 2019. Producers of all three main Industrial groupings report a decrease in new orders received from home markets. New orders in the export market are decreasing mainly due to a decrease in new orders among producers of intermediate goods. The decline in new orders among producers of capital goods may be due to weaker demand from oil and gas activities. Low economic growth among Norway's most important trading partners, particularly in the Eurozone and the United Kingdom, has contributed to lower demand for Norwegian export companies. Therefore, producers of intermediate goods have reported a decline in new orders received from the export market in three consecutive quarters. The strongest drop in export orders is seen in the industries Basic metals and Paper and paper products.

The decline in new orders also resulted in a drop in total stocks of orders within capital goods and intermediate goods in the fourth quarter of 2019. Producers of consumer goods still report growth in total stock of orders. Therefore, the total stock of orders in the manufacturing as a whole is roughly unchanged.

Figure 2. New orders received for manufacturing. Changes from previous quarter. Smoothed seasonally adjusted

For more than two years now it has been reported growth in price level both in the home and export market for overall manufacturing. After declining for some quarters, the growth rate in the fourth quarter of 2019 has increased somewhat in both markets. Producers of consumer goods and capital goods report growth in prices in both markets while the producers of intermediate goods reports increase in prices in the domestic market and unchanged prices in the export market.

Figure 3. Prices on products for manufacturing. Changes from previous quarter. Smoothed seasonally adjusted

Diminished optimism for the first quarter

The general outlook for the first quarter of 2020 is positive for overall manufacturing, but the numbers of leaders that looks optimistic about the coming quarter is lower than in the previous survey. Still, the industry leaders report upward adjusted future investment plans, and it is expected increase in new orders from both the domestic and the export market, but fewer leaders are sharing this opinion now than the previous quarter. However, the employment is expected to be unchanged in the first quarter of 2020. It is the producers of consumer goods who are most optimistic regarding overall manufacturing for the next quarter, while the producers of capital goods are now only moderate positive. Producers of intermediate goods now have a neutral view on the outlook for the first quarter.

Figure 4. General judgement of the outlook in next quarter for manufacturing

The industrial confidence indicator for the fourth quarter of 2019 was 0.7 (seasonally-adjusted net figures). The indicator is down from 2.3 in the last quarter. This is below the historical mean, which is calculated to 3.2. Before the third quarter of 2019 the indicator has not been below the historical mean since the second quarter of 2017.

The industrial confidence indicator has decreased mainly because the total stock of orders has flattened out in the fourth quarter and because of diminishing expected growth in production activity in the fourth quarter. Producers within intermediate goods and capital goods are contributing to the decrease in the industrial confidence indicator.

Values above zero indicate that total output will grow in the forthcoming quarter, while values below zero indicate that total output will fall. International comparisons of the industrial confidence indicator are available from Eurostat (EU), The Swedish National Institute of Economic Research and Statistics Denmark.

¹ Industrial confidence indicator is the arithmetic average of the answers (balances) to the questions on production expectations, total stock of orders and inventories of own products (the latter with inverted sign).

Figure 5. Industrial confidence indicator¹

Negative signals from factors limiting the production

The share of managers reporting that weak demand and strong competition were limiting factors for production increased somewhat in the fourth quarter of 2019. This is in contrast to the period from the third quarter of 2015 to the second quarter of 2019, when there was a continuous decline in the proportion of managers who highlighted this as a challenge. At the same time, the numbers of leaders who report that a lack of qualified labour is a challenge in order to increase production further had a clear fall in the fourth quarter of 2019. This indicator has shown continuous increase from the first quarter of 2016 to the second quarter of 2019. This picture signals a cyclical change and that the industry is meeting tougher times.

Figure 6

The average capacity utilisation for Norwegian manufacturing is at about the same level as in the previous quarter, and was calculated to 79.4 per cent at the end of the fourth quarter of 2019. This is below the historical average of 80.2 per cent. International comparisons of average capacity utilisation are available from Eurostat (EU).

Figure 7. Capacity utilisation in per cent for manufacturing

Timelines

The survey data was collected in the period from 5 December 2019 to 16 January 2020.