A NEW survey has showed UK manufacturing is in its longest period of decline for 28 years. Peter McCusker asks what the future holds for the sector?
WHEN the economic shakedown has worked through the economy over the next couple of years, the North East’s manufacturing landscape will not look so different.
That is the optimistic prognosis of a senior regional spokesman for the sector, Alan Hall of the Engineering Employers Federation (EEF).
But Mr Hall believes there will be tough times ahead and is witnessing, for the first time in recent years because of the economic uncertainty, a sense of caution in how his members view investment decisions.
Last June, nebusiness reported how optimistic the region’s manufacturers were feeling, with many revising their growth predictions upwards. Output in the North East in the first quarter of 2008 had grown 16% compared with the same time last year, and orders placed with North East companies had gone up 13% on the first quarter of 2008, according to the quarterly EEF survey.
In August The Journal reported that in 2007 there were 160,000 people working in manufacturing – more than in 2005.
But in early summer general economic nervousness, driven by the pressures of higher raw material costs, surging inflation and the paranoia of lending institutions seem to have combined to squeeze manufacturers.
This month the survey reported two years of growth had ended, with the North East reporting the biggest dip in manufacturing output in the UK in the past three months. And yesterday new figures from the Office for National Statistics showed manufacturing output in the UK falling for a sixth consecutive month in August to record the longest decline for 28 years.
Mr Hall said: “The economic uncertainty is causing companies to bite their lips. Three months ago companies could not find a good reason to defer any investment decision, but that is not the case now.
“In recent weeks the number of companies shedding jobs or laying-off staff has risen significantly and there is little sign this trend will be reversed.
“There have been a number of receiverships and there have been job losses and there will be more of that. There will be job cuts and this is tough for the individuals and for the company. Those companies involved in supplying retailers and construction do not need to be told how tough it has been, but there are some sectors which are performing extremely well.
“I am an optimist and I do not believe the industrial scene will be characterised by great gaps. There are some great companies in the region. Companies that are around now will still be around and will have recovered.
“When this is all over, in say two years’ time, the North East manufacturing scene will not look substantially different to the way it looks now.”
One NorthEast manufacturing and productivity manager Colin Herron said: “The picture today is completely different to what it was like in the 1970s. The closure of an industry or a factory such as Ever Ready factory in Stanley would have massive knock-on effects.
“Industries like the rag trade are now gone and there is a much more diverse manufacturing base in the North East today. We are not as exposed to structural changes as we once were.
“I believe most of the existing companies will survive the downturn. However, there is still much more that can be done by businesses to insulate themselves from the downturn in terms of cutting energy bills and working more efficiently – things One NorthEast can help companies with.”
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EEF speaks for hundreds
MOST North East manufacturers are represented by industry body EEF.
EEF Northern has more than 400 member firms, employing more than 60,000 people, representing manufacturing, engineering and technology businesses.
Nationally the organisation has a membership of 6,000 businesses and represents the interests of manufacturing at all levels of government.
Alan Hall, previously head of EEF in the North East, was this year promoted to be region director, where he not only oversees the North East but also EEF’s Northern, Yorkshire & Humberside and Sheffield Associations.
The new head of EEF in the North East is Tony Sarginson.---------------------------------------------------------
Strong foundations
TEN reasons to be cheerful about North East manufacturing:
1. There are sectors in which the region is developing world-leading reputations such as cars with Nissan and subsea oil and gas exploration with Wellstream and Duco.
2. More people are employed in North East manufacturing – 160,000 at the end of 2007 – than in 2005.
3. The region is no longer dependent on primary industries such as shipbuilding and steelmaking.
4. The North East is no longer a low-cost assembly base for global companies such as Atmel and Samsung.
5. As a consequence of 3&4 above, the North East has a much more diverse base.
6. The London 2012 Olympics and other publicly-funded construction projects will continue to drive demand.
7. The region is strong in defence, which is receiving substantial Government investment, eg the new aircraft carrier contract which is expected to support hundreds of regional jobs.
8. Annual exports which surpassed £10bn for the first time last year should continue to surge as the pound depreciates.
9. Falls in commodity and oil prices are easing cost pressures.
10. The region is developing expertise in niche digital markets such as games.---------------------------------------------------------
We are in the best position we have ever been, says director
HOUGHTON International took a strategic decision to look again at its markets after having its fingers burned with the collapse of Enron and the September 11 terror attacks in the US, within a month of each other in 2001.
Seven years ago, 60% of the work of the engineering company at Walker in Newcastle was manufacturing and its main market was the US. Now manufacturing accounts for 20% of output and it has a different set of customers.
Managing director Michael Mitten said it was no accident the family firm was now thriving despite the difficult economic situation.
“We went after industries in the UK that we saw as recession-proof – power generation, rail transportation and water authorities – those key industries that are always going to be there,” he said.
Houghton International is recruiting 20 staff, has a £4m order book for five years and is on target to grow 30% this year with sales of £3m. “We are in the best position we have ever been, and have the best order book,” said Mr Mitten.
“A number of our customers have cut production or gone to different production cycles. But it is not a massive chunk of our business.
“We are looking at taking on 10,000sqft of extra factory space, but I’m really concerned about which bank will fund it, given the problems in the banking sector.”
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By 2010 this should be behind us
by Alan Hall
I THINK every business person is trying to decide the impact that the current economic slowdown is likely to have on their business and market.
I am spending some time myself trying to get a handle on the rollercoaster of developments.
It may seem surprising to some, but many parts of the manufacturing sector are still continuing to do well.
If you think about it, somebody has to benefit from the high price of fuel and energy.
So, the oil and gas sector remains buoyant – $100 a barrel is still a lot more worthwhile than $30 a barrel a couple of years ago. My assessment also says that we are not done with $140 a barrel.
When we pick up from the current economic slowdown such prices will emerge again.
Another sector in manufacturing that is so far unaffected is defence.
This is clearly public sector spend from governments around the world and defence projects are typically long-term in nature, so this work continues apace.
Major infrastructure projects sit in a similar camp to defence. Work can be wound down on long-term developments of this type, but most are continuing as before the Northern Rock debacle.
New projects may not be started, but existing ones are being pursued to completion.
So has manufacturing taken a hit along with the high street blues and the bankers crying in their beer?
Certainly, segments of the sector have.
Suppliers to retail and companies serving housing construction are two prime examples of this. I think the impact on manufacturing is about to widen.
There are several pinch-points for manufacturers in the region. While raw material and energy prices are past their recent peak, they are still applying acute pressures on the cost base of companies.
There is also a slowdown in order intake for a growing number of companies in the sector. Any costs in business are harder to cover as business turnover falls.
So, I am having to reflect a level of concern about the economic scene for manufacturers.
However, it has to be set in the context that parts of manufacturing continue to do well and I am still of the view that by 2010 we should be able to put this current slowdown behind us and to be able to look forward to much better times.
Alan Hall, region director, EEF
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Toll so far
Recent manufacturing job losses:
January: Black and Decker, Spennymoor, axes 169 jobs
January: Corning, Sunderland, axes 100 jobs
April: Jaycare, North Shields, axes 55 jobs
September: Rohm and Haas, Jarrow, axes 24 jobs
September: Watson Norie, Newcastle, axes 159 jobs
October: Parker Hannifin, Crook axes 181 jobs
October: Cummins, Darlington, puts 86 on notice of redundancy
