Business tendency survey: A slight downturn

01.11.2007

The business tendency survey conducted by EK in October indicates that the current trend is substantially more robust than normal in most sectors. Previous favourable expectations have been realised. However, uncertainty about the trend has increased.

In most sectors the trend is expected to weaken slowly during the coming winter. Moreover, differences in outlook between businesses and sectors have widened.

The manufacturing companies that replied to EK’s survey continued to book an increasing number of new orders. Growth in production has slackened somewhat but order backlogs and capacity utilisation are still high. Total employment has also improved more than expected. Labour and capacity shortages continued to hinder production.

Business also continued to be better than normal in the service sector. Price trends, too, improved somewhat more rapidly. No substantial changes in trends are expected in the next few months, although increasing costs will put pressure on prices.

In construction, the boom has continued. There is still a substantial shortage of labour and costs have increased considerably. The number of unsold flats has grown significantly. The construction boom is expected to cool down somewhat.

The outlook indicator for manufacturing companies was -6 in October against +2 in the previous survey conducted in July. The range of expectations among businesses has increased considerably from July. In October, 11 per cent of companies anticipated further improvement in business, while 17 per cent anticipated a downturn. 72 per cent of the companies expect trends to remain unchanged in the winter.

In construction, the outlook indicator for October was -16, against +9 in July. In October 9 per cent of respondents anticipated improvement and 25 per cent anticipated a downturn. Two thirds - 66 per cent - of the companies do not expect any changes in the coming months.

In the service sector, the October outlook indicator was -1 (+5 in July). In October 10 per cent of respondents expected improvement and 11 per cent expected a downturn. More than three quarters or 79 per cent anticipated a stable situation until the beginning of next year.

Demand and orders

There was some increase in the new orders received by the manufacturing companies that replied to EK's survey. Order backlogs remained rather stable and respondents describe them as clearly above the normal level. Overall, demand for services was still good. In the construction sector, orders also increased slightly on the previous quarter, although developers had an increasing number of unsold flats. There are currently more unsold flats than usual.

Manufacturing companies expect the order backlog to grow at a rather moderate pace in the upcoming months. Although for the most part, demand is expected to continue at a good level, the wood  industry, for example, expects a substantial decrease in new orders.

Production and sales

The survey indicates that growth in manufacturing industry production has slowed down some-what in early autumn. In fact, production expectations were already rather cautious in the previous survey. Growth was somewhat weaker than was expected three months ago. The trends in domestic sales and exports were almost identical. Future expectations are also restrained. Production will continue to expand but at a rather slow rate for the remainder of the year. Slightly  stronger growth is expected for the first quarter of 2008.

The increase in construction output was fairly rapid in early autumn. Fairly rapid growth is expected for the rest of the year, too, although the rate is expected to decelerate at the beginning of next year.

In the service sector, sales have continued to increase at a good pace. Sales forecasts for the remainder of the year continue to be positive, although growth is anticipated to be somewhat slower in January–March 2008.
 
Labour force 

The industrial labour force trend has been favourable. The labour force has grown at a rather quick pace for the entire year, even surpassing the estimates of the companies themselves. The trend continued from July to September, although there was considerable dispersion between sectors. Employment improved in the technology and chemicals industries, while there were substantial reductions in the paper industry, for example. Growth in personnel numbers is expected to slacken slightly in the future and no increase is expected in total figures for the rest of 2007.

Construction company personnel continued to increase quite rapidly. In fact, the increase exceeded what was anticipated three months ago. Employment is also expected to grow somewhat in the remainder of the year with normal seasonal variation accounted for.

In the service sector, the labour force grew very slowly in late summer. This was expected, as three months ago companies presented cautious estimates on the trend in labour force. In the remainder of the year companies nevertheless plan to increase their labour force to some de-gree.

Production capacity

Manufacturing company capacity utilisation rates continued to be very high. In the October survey, 89 per cent of companies were operating at full capacity. Correspondingly, only 11 per cent of companies reported excessive capacity with respect to demand. No significant changes have taken place in these figures since July. The capacity utilisation rate is at a level similar to the 2000 business cycle peak. The July survey also showed an increase in capacity shortage.

Prices and costs

The sales prices of manufacturing company products increased somewhat. Prices are expected to continue increasing at a moderate rate. Production costs continued to rise rapidly, and no substantial improvement is expected in the near future.

The sales prices of construction companies increased rather rapidly but the pace is expected to slow down markedly before the end of the year. Costs have continued to increase very steeply, although the trend is expected to be less negative in the remaining months of 2007.

For service companies, the survey indicates that sales prices have begun to increase again after levelling off in early summer. Prices are expected to increase somewhat more rapidly in the immediate future. Costs also increased somewhat and are expected to climb much more rapidly in the upcoming months.

Production bottlenecks

Shortages of skilled labour are still substantial. In industry, labour shortages were more aggravated than indicated in the previous survey. As before, the problem is worst in construction, the engineering industry and in building maintenance and cleaning. Insufficient capacity is also a considerable obstacle to expansion, although more and more companies also reported insuffi-cient demand.

In January 27 per cent of manufacturing companies identified a shortage of skilled labour as a bottleneck (19 per cent in July). The situation is worst in the machinery and metal products industry, but there is at least some labour shortage in all principal sectors. Of the responding manufacturing companies, 16 per cent reported insufficient demand as a bottleneck while 14 per cent were held back by insufficient capacity.

The shortage of skilled labour in construction was still substantial. In January 45 per cent of manufacturing companies identified a shortage of skilled labour as a bottleneck (48 per cent in July). Of the responding manufacturing companies, 12 per cent reported insufficient capacity as a bottleneck while 17 per cent said demand was weak.

In the service sectors, the shortage of skilled labour was essentially unchanged. In October, a shortage of skilled employees was reported by 25 per cent of respondents to EK's survey (24 per cent in July). Demand was weak for only 8 per cent of the responding service companies (10 per cent in July).

EK Business Tendency Survey

The Confederation of Finnish Industries EK's business tendency survey is published four times a year. The survey has been conducted regularly since 1966. 1,219 companies employing approximately 325,000 people replied to the survey, which was carried out in October.

For additional information, please contact: Senior Economist Penna Urrila, tel. +358 9 4202 2606 (09) 4202 2606