'Too early to talk of sustained recovery'

Nov 10 2009 by Karen Dent, The Journal

THE last month has seen North East business expand at its fastest rate for three years, but senior business leaders say it is too early to talk of a sustained recovery.

Confidence levels, new business and activity levels rose among the region’s manufacturing and service companies in October, according to financial information firm Markit.

Its latest Business Activity Index for the North East registered 59.3 in October, up from 58.4 in September.

It is the fourth consecutive monthly rise recorded by Markit, which said the increase was the second biggest of any UK region.

Markit economist, Alex Hamilton, said: “The acceleration of activity growth in September was maintained in October as business sentiment in the region continued to improve, boosting client spending.

“However, reduced work-in-hand and employment highlighted that underlying demand remained much lower than the pre-recession levels.”

But the manufacturing employers’ group EEF said the results were much brighter than its members had seen.

EEF’s regional external affairs manager, Tony Sarginson, said: “This is a very optimistic survey. It does not reflect my experience in the manufacturing sector.

“I have heard the service sector is doing all right but when I talk to colleagues in other organisations, while optimism has increased, we see little real reason why this should be so. We see little evidence of new orders being placed. It’s a conundrum; optimism is up but not orders.”

However, the Markit research reported the region’s strongest expansion of private sector output in just under three years, solid new business growth and a continued easing in the rate of job losses.

Despite a fall in staff numbers for the 19th straight month, the region’s private sector firms told Markit that volumes of new orders increased at a solid rate but they had plenty of spare capacity. Average input costs increased slightly for a second month, due to higher fuel costs and exchange rate.

And firms said they were continuing to reduce prices to remain competitive and protect their market share.

Mr Sarginson said the rise in confidence was due to manufacturers convincing themselves customers must be about to re-order - although orders had not yet started to filter through.

The North East Chamber of Commerce (NECC) agreed its members were reporting higher levels of confidence but it warned the immediate outlook remained cautious.

Head of policy, Ross Smith, said: “What we have not seen is that we have reached the tipping point will take us out of recession and into recovery.

“The important thing is many firms are starting to report growth, particularly those exporting. Those involved in international markets are leading the way.”

The NECC’s next quarterly survey is due just after New Year and Mr Smith is hopeful that tipping point into recovery may be reached then.

“But we shouldn’t expect a dramatic upswing; there is a hard road ahead, even when we get into recovery,” he said.