Business tendency survey for manufacturing, mining and quarrying, Q4 2006

According to the Business Tendency Survey, the Norwegian manufacturing industry experienced an increase in output and capacity utilisation in the fourth quarter of 2006, in addition to further growth in employment. A high level of new orders combined with rising prices in the domestic and export market spur this development. The indicator of resource shortage¹ (see table 16 ) has reached a very high level seen from a historical perspective. Lack of qualified labour and insufficient supply of raw materials or shortage of electric power pose a much bigger problem than one year ago. The situation is particularly demanding for producers of building materials (wood and wood products, other non-metallic mineral products). The average number of working months covered by the current stock of orders is somewhat higher than the corresponding result for 2005. The same is the case in regard to the number of businesses that report full capacity utilisation. Average capacity utilisation in the Norwegian manufacturing industry is estimated to about 84 per cent.

The number of managers who consider the general short-term outlook (Q1 2007) as better is somewhat higher than in the third quarter, and more businesses claim they are considering an increase in planned gross capital investments. The industrial confidence indicator² is estimated to be 18 (seasonally adjusted net figure). This is a very high result and a strong indication of sustained growth in output in the forthcoming quarter. International comparisons of results for the industrial confidence indicator are available from EUROSTAT (EU) and The Swedish National Institute of Economic Research (Sweden).

Intermediate goods: High level of new orders

Sectors producing intermediate goods (pulp, paper and paper products, chemical industry, basic metals etc) experienced an increase in output and capacity utilisation in the fourth quarter of 2006. A high level of new orders from the domestic market is the main driving force behind this development. The average number of working months covered by the current stock of orders is somewhat higher than in the corresponding period of 2005, and a larger number of businesses report full capacity utilisation. Average capacity utilisation is estimated to about 86 per cent, which is a high result from a historical perspective.

The number of managers who point at resource shortage as a factor that limits production is somewhat higher than the corresponding figure for 2005, and the problem seems to be growing. This development is particularly visible with regard to shortage of qualified labour and insufficient supply of raw materials or shortage of electric power. A high level of activity within the industries in question contributes to raise production costs (cost push). In times of high demand, the supplier will be able to pass additional costs over to the customers. However, huge demand for intermediate goods such as building materials also causes market prices to rise for this kind of products (demand pull). The fact that the Chinese are buying all that is available of certain types of intermediate goods, such as metals, contributes to reinforce this development.

A large number of managers consider the general short-term outlook to be better. Expectations of a rise in market prices support this result. An increase in planned gross capital investments may result in higher production capacity in the years to come. The will to invest seems to be particularly high within basic chemicals production.

Capital goods: High level of activity in engineering industries

Producers of capital goods (metal products, machinery and equipment, offshore-related activity etc) report higher levels of production and capacity utilisation compared with the third quarter results. Employment has also increased in the fourth quarter. Increases in new orders from the domestic and export markets lead to a further rise in the total stock of orders, while lack of production capacity contributes to a rise in market prices.

The indicator of resource shortage shows a very high level seen from a historical perspective. Lack of capacity and shortage of qualified labour is the main source for this. A noticeable increase in the number of managers reporting lack of raw materials and/or electric power as a limiting factor for production also contributes to the rise in this indicator. The average number of working months covered by the current stock of orders is considerably higher than in the corresponding period of 2005, and many businesses report full capacity utilisation. Average capacity utilisation for producers of capital goods is estimated to be as high as 89 per cent.

The number of managers considering the general short-term outlook to be better is still very high. Growth in the total stock of orders and expectations of further improvement in market prices support this view. Signs of an increase in planned gross capital investments could result in higher production capacity in the years to come, but at the moment some of the orders must be postponed or taken over by businesses with free capacity.

Consumer goods: Improvement in the forthcoming quarter expected

New results from sectors producing consumer goods (food industry, publishing, pharmaceutical industry etc) indicate improved market conditions. Increased demand from the domestic and export markets gives rise to an increase in production, while market prices continue to rise. Average capacity utilisation is estimated to be about 79 per cent in the fourth quarter, the same level as in the previous survey.

The general outlook for the first quarter is judged as positive, and the number of managers sharing this view is considerably higher than in the third quarter. Expectations of further increases in demand and improved market prices support this view.