A mood of optimism has gained ground as the April consumer confidence poll by GfK NOP hit its highest point for a year. Other encouraging signs have included a surge in high street sales in the year to April, another rise in estate agents’ new enquiries, and a rally in equities.
But spring sunshine, and a media focus on the few signs of less dramatic economic decline, can’t hide sharply rising joblessness, house repossessions, insolvencies and personal bankruptcies – nor the prospect of the austerity which looms for consumers and businesses.
The Bank of England’s latest Inflation Report suggests GDP will fall by around 4% this year – and will grow by only 1% in 2010. But, as governor Melvyn King admits, “Judging the balance of influences on the economy at the moment is extraordinarily difficult”.
Housing market
Meanwhile the Chartered Institute of Supply Management’s April survey shows that housing was again the worst-performing sector in UK construction. But although all areas recorded contractions in output, the severity of the recession moderated, with the easing focused on civil engineering as major projects such as the Olympic games were unaffected by the nation’s economic plight.
Orders placed with contractors for new construction fell 20% by volume in the three months to March and dropped by 38% compared with the same period in 2008. Private housing orders were down 12% on the previous quarter and fell by 50% annually. Orders for commercial projects, such as shops and offices, were down 33% on the previous three months and were 55% lower than a year ago. New orders for industrial buildings fell by 33% and 55% respectively compared with the previous quarter and a year earlier.
Wood and wood product manufacturers’ raw materials and fuel costs picked up marginally. In the year to April costs rose by a yearly 2.8%, after an annual increase of 2.7% the previous month. The annual rise in the sector’s output prices strengthened to 3%, from 2.8% in March. In manufacturing overall, price inflation fell from 2% in March to a five-year low of 1.2% but, excluding the volatile prices of food and petroleum, factory gate prices were 2.4% higher than a year ago.
New order volumes
A new CBI survey of timber and wood product manufacturers, other than furniture makers, found 29% of firms expect a downturn in new order volumes during the coming quarter compared with the last three months, while 14% expect an increase. The resulting balance of -15% suggests a sharp improvement on the balance of 93% who reported a decline in orders in the previous quarter. Prices of future domestic orders are expected to fall less severely than in the previous quarter, but a balance of over 33% of firms fear they will have to reduce prices for home-market sales.
Output in the sector fell for a balance of 57% of firms in the past quarter, and a further contraction is expected in the next three months, but at a slower pace (indicated by a balance of -22%). As well as cutting output, firms have been running down stocks sharply during the last three months and plan to continue de-stocking over the coming quarter, although at a slightly less aggressive pace.
Furniture production
Furniture makers’ new order volumes are set to fall by one in two businesses – a slight worsening of the drop in orders seen during the last quarter. A correspondingly larger cutback in the volume of output is expected, but a marginally weaker price-cutting environment is set to prevail at the factory gate, with 31% of firms prepared for lower returns, compared with a decline seen by 39% last quarter.
General business sentiment among furniture manufacturers continued to fall this quarter although at a slower rate than in the previous quarter (-34% compared with -77%). For wood and wood product manufacturing sector the relative improvement was even more marked (-37% compared with -100%).
