Jobs cuts expected amid cost pressures

Jul 24 2008 by Iain Laing, The Journal

MANUFACTURERS are expected to hack thousands more jobs as they experience their worst price pressure for nearly 30 years.

The latest CBI Industrial Trends survey showed that average unit costs rose for 65% of firms in the last three months, while they fell for just 7%. The resulting balance of 58% is the highest reading since October 1980.

Based on the results, the CBI forecasts that 10,000 jobs were lost in the second quarter this year with 26,000 expected to go in the third quarter. The report said that a balance of 27% of firms expect to cut jobs over the next three months, the worst reading since January 2007.

It comes in the wake of soaring oil prices, which reached a record US$147 a barrel earlier this month. They have since fallen back around 10%.

More manufacturers are also expecting to put prices up than at any time since the lead-up to the last recession more than 18 years ago. A balance of plus 34% of firms expect prices to rise over the next three months, the highest level since January 1990.

The CBI’s chief economic adviser Ian McCafferty said: “Cost pressures on manufacturers have been noticeable for over four years but in the last three months they have been their most intense for nearly three decades.

“So it comes as little surprise that manufacturers are passing some of these higher costs on to customers although this is unlikely to rescue profits from a margin squeeze.

“The record oil price peaks in the last three months have pushed down further on business confidence and lowered firms’ expectations for demand in the coming quarter.”

The business mood about the overall situation darkened considerably for the fourth quarter in a row, the survey revealed, with a balance of 40% reporting less optimism compared to the previous three months. This is the worst reading since the aftermath of the 9/11 terror attacks in October 2001.

A balance of plus 58% of firms expect their costs to increase over the next three months, the survey showed.

The CBI headline reading relating to order book levels revealed that a balance of 8% of businesses reported a decline during July, compared to 1% enjoying a rise during the previous month. For the first time in at least a year more manufacturers also expect their volume of output to decrease over the next quarter. The balance of companies expecting worsening activity dropped to minus seven in July, down from plus 2% in June.