Exports remain flat for SME manufacturers

SMALL and medium-sized manufacturers’ total domestic orders and output grew in the three months to January but export orders were broadly flat.

According to the latest CBI SME Trends Survey, domestic orders increased for the sixth quarter running, while export orders were broadly flat, disappointing expectations of a modest rise.

Domestic orders and output are both expected to grow again next quarter, at a slightly stronger pace.

Despite the highest level of concern since 2013 over the impact on exports of testing economic and political conditions abroad, smaller manufacturers are slightly more optimistic about their overseas trade prospects for the year ahead, and expect a modest pick-up in export orders.

Firms continued to create more jobs in the three months to January, although the rate of growth in employment slowed for the second consecutive quarter. Employment in the sector is expected to grow more strongly over the next quarter.

Smaller manufacturers plan to invest more in plant and machinery and buildings over the next twelve months, with expanding capacity remaining an above-average driver. However over the past two quarters, uncertainty over demand has ticked up as a possible constraint to capital investment.

With inflationary pressures low, both average unit costs and domestic prices were broadly flat, the latter for the third quarter running, and export prices continued to fall.

Rain Newton-Smith, CBI director of economics, said: “Smaller manufacturers are continuing along a steady growth path, with domestic orders and output both rising at a healthy pace. The sharp fall in the oil price should also help, pushing down the cost of production and raw materials for firms.

“But stagnant export orders are dragging on the sector’s performance, mainly because of the sluggish recovery and growing uncertainty in the Eurozone.

“Quantitative easing should inject some new life into Eurozone economies but it won’t be a miracle cure and businesses will have a close eye on Greece, as the new Government sets out its agenda.”

Key findings – three months to January

26% of small & medium sized enterprise (SME) manufacturers said they were more optimistic than three months ago, while 13% said they were less optimistic, giving a rounded balance of +14%, up from +9% last quarter

32% said their volume of output was up, and 19% said it was down, giving a rounded balance of 12%, which compares with +9% in the previous quarter

35% said their domestic orders were up, while 20% said they were down, a balance of +15%

18% said export orders rose over the past three months, 21% said they fell, leaving a balance of -3%, compared with -13% last quarter

The balance for expected export orders over the next three months was +6% and for expected domestic orders was +19%

Firms’ optimism about their exports prospects for the year ahead rose slightly (+4%), compared with -6% last quarter, and is expected to tick up again in the next three months (+6%)

Nevertheless, the number of SME manufacturers raising concerns about political and economic conditions abroad affecting export orders rose to 32%, its highest level since April 2013 (+32%)

31% small manufacturers are employing more people than three months ago, 18% less. The resulting rounded balance of +12% compares with +17% in the three months to October

The balance for employment expectations over the next three months is +18%

Firms are planning to spend more on plant and machinery (+11%) and slightly more on buildings (+4%) over the next twelve months, with expanding capacity a key driver (+41%). But the share of firms citing uncertainty about demand as a possible constraint on capital expenditure rose to +59%, the highest since January 2013 (+64%)

Average unit costs and domestic prices were both broadly flat over the three months to January at +1% and -2%, respectively. Export prices fell (-9%), but are expected to be flat in the next quarter.