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The Quarterly Economic Survey is produced for the Greater Birmingham and Solihull LEP (GBSLEP) by the Birmingham Chamber of Commerce Group each quarter. This consisted of 217 service based companies employing 8485 people and 80 manufacturers employing 10,343.

The QES draws its results from questionnaire responses completed by businesses. For Q1 2013 a total of 297 companies, employing 18,828 workers, from across the LEP area were surveyed between February 18 and March 13 2013. It is important to note the distinction between the uses of the term “percentage” and “percentage balance” throughout this report. In order to code results, a percentage balance is calculated by subtracting the percentage of firms reporting a decrease from the percentage of firms reporting an increase. So if 24 per cent of firms reported an increase, while 15 per cent reported a decrease, the percentage balance would be +9 per cent. This method is applied in the “Results Breakdown” section. However, for the “Executive Summary”, the strict percentage of firms reporting an increase has been applied.

EXECTUIVE SUMMARY

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DOMESTIC MARKETS

PAGE 6

EXPORT MARKETS

PAGE 7

LABOUR AND EMPLOYMENT

PAGE 8

CASHFLOW/INVESTMENT

PAGE 10

CONFIDENCE/PRESSURES

PAGE 11

EXTERNAL FACTORS

PAGE 12

RESULTS

PAGE 13

For further information please contact: Birmingham Chamber of Commerce Group Name: David Bharier Phone: 0121 607 1814 Email: d.bharier@birmingham-chamber.com


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The number of firms reporting an improvement in domestic and export markets for sales and advance orders saw a decline saw a decline for manufactures but a rise for service firms; More firms reported positive labour growth; Business confidence rose sharply; More firms reported improvements in cash flow. As the slowest economic recovery in over 100 years, signs of revival at the national level appear to be mild at best, with GDP growth for Q4 2012 falling to 0.3 per cent (fig 1.1). Growth forecasts for 2013 have been cut by both the IMF (from 1.1 per cent in October 2012 to 1 per cent) and the OBR (from 1.2 per cent in December to 0.6 per cent). While this would indicate negativity over UK economic growth, it is important to note that at the international level, growth for many nations is even weaker. For instance, in Q4 2012, the Eurozone GDP rate shrank by -0.6 per cent, indicating that recession very much clouds the continent. This can of course be contrasted to the growth rates for emerging markets, with China’s GDP rate estimated to have stood at 8.1 per cent in Q1 2013.

reduction in growth can lead to a rise in the unemployment rate. This certainly appears to be the case at present. Employment figures published by the Birmingham City Council in March 2013 show an increase in people claiming unemployment benefits (fig 1.2) The claimant rate for Birmingham (10.6 per cent) stands much higher than the rate for the UK as a whole (4.9 per cent). Fig 1.2 Average Unemployment Rates (March 2013)

Fig 1.1 UK GDP Growth

Economic performance is often closely correlated to employment levels, and a

Business attitudes towards employment as reported in Q1 do however appear to buck this trend. For instance, current and projected employment levels reported in this quarter’s QES in both the manufacturing and service sector are positive, indicating that more companies are willing to take on more staff. This is highlighted further by the fact that fewer businesses reported that they were acting at full capacity.


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The recent budget of March 20th contained several proposals which may help stimulate employment both nationally and in Birmingham. For instance, since many businesses in Birmingham are small or medium sized enterprises (SMEs), the proposed £2,000 reduction in employer’s National Insurance contributions would effectively mean that these firms would no longer need to pay NI contributions at all. However, while incentives to boost employment will be welcomed, remedying the skills deficit in Birmingham will be a much larger task. The recruitment difficulties reported in Q1 mirror the disproportionate level of unskilled workers in the West Midlands. Birmingham’s proportion of skilled residents (26 per cent) falls short of the 31 per cent average for the rest of the UK. In Q1, businesses reported that skilled/technical and managerial positions were the hardest for firms to recruit to. Conversely, few difficulties were felt when attempting to recruit unskilled labour. In its Strategic Framework document, the Birmingham & Solihull LEP reaffirmed the need to “radically reform” the skills eco system in Birmingham. It proposed a “Skills for Growth Compact”, which would seek to reinforce the link between businesses and education and reduce the number of

employers in the LEP reporting a skills gap to 15 per cent by 2020. With the Chancellor pledging £3billion for capital spending projects in this year’s Budget, we can expect to see stronger growth from the manufacturing sector, especially businesses relating to infrastructure development. However, manufacturers need to continue to push forward in the export market. In the wider West Midlands region, exports have been showing an upward trend since 2009, with the value of exports almost doubling to just shy of £6 billion (fig 1.3). In 2012, machinery and transport accounted for over 66 per cent of exports from the West Midlands. Manufactured goods and chemicals are also strong export markets for the Midlands. Despite this upward trend, fewer manufacturers reported an increase in foreign sales and advance orders in this quarter’s QES than compared to last quarter. Encouraging exports to emerging markets such as India and China will be crucial for manufacturers and service businesses in the Midlands. While Europe still imports a significant share of goods and services produced in the Midlands, this has fallen somewhat from previous years. As such, an export strategy to non-European markets will be crucial in the coming years.


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Fig 1.3 Imports/Exports in West Midlands (£millions)

While this quarter’s QES reports that monetary policy is of overall less concern to businesses, inflation is still high on the agenda of service firms. The Chancellor’s decision to maintain the 2 per cent inflation target may help to allay fears businesses might have over unstable inflation rates. Competition topped the list of concerns for both sectors, and this can be seen as a healthy indication that firms are returning to a normal business environment, where competition plays a more important role than external factors such as monetary policy. The first quarter of 2013 has seen a continued level of growth and positivity from the service sector in Birmingham. We have seen clear upward trends for domestic demand/advance orders, labour force growth, improvements

with cash flow. This all indicates a positive step in the right direction for businesses. Although more manufacturers have reported improvements in employment growth, cash flow, and business confidence, the reduction in firms reporting improvements in domestic and foreign sales is a stark reminder of the uncertain economic future. The introduction of more substantial infrastructure spending by the government could see results in the manufacturing sector in subsequent quarters. However, to see quicker results, the £3 billion stimulus scheduled for 2015 would need to be brought forward. The removal of the NI jobs tax will also be an important step to tackle unemployment in Birmingham If we compare the results of this quarter’s Birmingham QES to those produced by the Chamber of Commerce at the national level, we can see that Birmingham outperforms in terms of labour growth and business confidence in both sectors, but falls short in terms of domestic and foreign sales for the manufacturing sector. A higher proportion of manufacturers nationally reported improvement in both markets, whereas Birmingham manufacturers saw a drop in the number of firms reporting an improvement. This gives further evidence that Birmingham manufacturers are lagging somewhat behind national standards.


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Domestic sales in the manufacturing sector improved somewhat on the previous quarter but still reflected a flat-lining of domestic demand both at the local and national level. A percentage balance of +8 per cent of manufacturers reported that their domestic sales had increased, recovering somewhat from the decline witnessed since Q1 2012 (fig 2.1). In contrast, the percentage balance of service businesses reporting an increase in their domestic sales stands much more positively at +29 per cent, continuing the clear upward trend from the low reported in Q3 2011 (fig 2.1). This also bucks the trend at the national level, as reported by the Bank of England for business services turnover, which has seen a far more modest increase. Fig 2.1 Domestic Sales

A percentage balance of +5 per cent of manufacturers reported that their orders/advanced custom had increased,

continuing the downward trend which began in Q2 2012 (fig 2.2). Services again demonstrated a clear growth pattern, with a percentage balance of +28 per cent of service firms reporting an increase in advanced custom and orders, the highest seen since Q4 2007. Fig 2.2 Advance Orders

Services Manufacturing


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Export sales demonstrated an inverse trend in both sectors, with the number of service firms reporting an increase in sales dropping after improvement in the previous quarters. On the other hand, manufacturers recovered from an earlier decline in the same time frame. A percentage balance of +10 per cent of manufacturers reported that their export sales had increased, and a percentage balance of +24 per cent of service firms reported an increase in export sales, down from 29+ in Q4 2012 (fig 2.3). Fig 2.3 Export Sales

A percentage balance of +9 per cent of manufacturers reported an increase in advanced sales during Q1, with no change from the previous quarter (fig 2.4). A percentage balance +15 per cent of service firms cited increased growth for advanced orders and custom, a drop from the +20 per cent in the previous quarter.

Fig 2.4 Export Orders

Services Manufacturing


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Both the manufacturing and service sector reported a growth in labour force. A percentage balance of +19 per cent of manufacturers, and +15 per cent of service firms reported an increase in their workforce over the previous three months (fig 2.5).

Fig 2.6 Employer Recruitment Intentions

Fig 2.5 Balance of employers reporting an increase in their workforce Businesses in both sectors opted to take on more full-time and permanent staff in the previous three months, with the aforementioned categories accounting for 76 per cent of new employees in the manufacturing sector, and 71 per cent in the services sector (fig 2.7). Recruitment intentions over the next three months also showed a marked improvement, with a percentage balance of +19 per cent of manufacturing firms, and +19 per cent of service businesses reporting that they believed that their workforce would probably expand during Q2 2013 (fig 2.6).

Fig 2.7 Type of Position Recruited

Services Manufacturing


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Fig 2.8 Percentage of Firms Attempting to Recruit

The level of attempted recruitment saw an increase in both sectors, with 48 per cent of manufacturers and 40 per cent of service businesses reporting that they had attempted to recruit in the previous three months (fig 2.8). The number of employers reporting recruitment difficulties however also increased slightly following a general trend downwards in previous quarters, with 32 per cent of manufacturers and 26 per cent of service businesses reporting difficulties (fig 2.9).

Fig 2.9 Employers Reporting Recruitment Difficulties

Services Manufacturing

Despite increased unemployment in Birmingham, the percentage of firms currently working at capacity dropped. 29 per cent of manufacturers and 35 per cent of service firms reported that they were acting at full capacity (fig 3.6). Fig 3.6 Businesses at Full Capacity


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A percentage balance of +4 per cent of manufacturing companies reported that their cashflow had improved during Q1 2013, an improvement from the -6 per cent reported in Q4 2012 (fig 3.1). Conversely, the cash flow of service businesses appears to have seen a marked improvement with +19 per cent of service firms reporting that their cashflow had improved during Q1, up from +9 per cent in both Q3 and Q4 2012. Fig 3.1 Businesses reporting an improvement in their cash flow

Fig 3.2 Investment Intentions for Machinery and Equipment 40 20 0 Q1Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 2013 -20 -40 A percentage balance of only +10 per cent of manufacturers reported that they had revised their investment intentions upwards, continuing the decline from previous quarters (fig 3.3). For the service sector, the trend was inverted. After a major dip in Q3 2013, subsequent quarters witnessed a clear recovery, with a percentage balance of +18 per cent of service firms reporting that they had revised upwards their investment intentions for training.

Investment Plans for Machinery/Equipment A percentage balance of +23 per cent of manufacturing firms reported that they had revised upwards their investment plans for equipment and machinery, a slight increase on the +21 per cent reported in Q4 2012 (fig 3.2). The same trend is echoed for the service sector, with a percentage balance of +17 per cent of service firms reported that they had revised their investment intentions upwards for equipment upwards during Q1 2013.

Fig 3.3 Investment Intentions for Training

Services Manufacturing


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A percentage balance of +49 per cent of manufacturers reported that they believed that their turnover would improve in the coming twelve months represents the highest figure for 12 months, demonstrating a continued level of optimism from previous quarters (fig 3.4). The level of confidence was even higher for services, with a percentage balance of +65 per cent of service firms confident that their turnover will improve. Fig 3.4 Businesses Confident that Turn-over will improve

Fig 3.5 Businesses Confident that Profitability will Improve

Price Pressures Fig 3.7 Businesses Expecting their Prices to Rise The number of firms expecting their prices to rise dropped for both sectors in Q1. A percentage balance of +27 per cent of manufacturing firms reported that their prices would rise over the next three months, while a percentage balance of +10 per cent of service firms reported an anticipated rise (fig 3.7).

Profitability Expectations (Next 12 Months) Likewise, profitability expectations were also high, with a percentage balance of +47 per cent of manufacturing firms reporting that they believed their profitability would improve over the 12 months from Q1, up from +38 per cent in the previous quarter (fig 3.5). A percentage balance of +63 per cent of service firms reported confidence that their profitability would improve, continuing the sharp upward trend.

Services Manufacturing


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For the manufacturing sector, 45 per cent of firms reported that the cost of raw materials was the biggest factor in driving prices up (fig 3.8), whereas in the service sector, 46 per cent of firms reported that other overheads were accounting for rises.

Competition has been the biggest concern to both manufacturers and service firms in Q1 2013, continuing the steady upward trend since Q1 2011. Exchange rates have also been a clear concern for manufacturers.


Greater Birmingham QUARTERLY ECONOMIC SURVEY - March 2013 Q2 2012 JUN %

MANUFACTURING INDUSTRIES

1. Main Activity Energy and water supply Minerals and chemicals Metal goods and engineering Other manufacturing Construction Other

Q3 2012 SEPT %

Q4 2012 DEC %

Main Activity Q2 09 Production of raw materials, agriculture Manufacture of electronic or IT goods Manufacture of other goods Construction

Number of Employees 1-19 20-199 200-499 500+

Q1 2013 MAR %

22

6

18

6

40 7 13

71 5 11

533 3762 2157 7984

586 2455 450 1016

456 1804 814 9050

308 2144 930 6961

increased remained constant decreased % Balance

41 36 23 18

40 38 22 18

33 39 28 5

28 51 21 8

increased remained constant decreased % Balance

38 41 21 17

37 42 21 16

31 44 25 6

23 59 18 5

increased remained constant decreased % Balance

38 42 20 18

45 44 11 34

37 32 31 6

31 48 21 10

increased remained constant decreased % Balance

34 35 21 13

36 49 15 21

35 39 26 9

26 57 17 9

increased remained constant decreased % Balance

22 67 11 11

23 65 12 11

29 57 14 15

30 59 11 19

increase remain constant decrease % Balance

24 67 9 15

21 73 6 15

19 69 12 7

21 74 5 16

c) The percentage of firms attempting to recruit is:

38

48

34

48

d) If yes: Part-time jobs Full-time jobs Temporary jobs Permanent jobs

5 51 11 33

6 61 9 24

8 44 9 39

9 43 14 33

2. UK Market Excluding seasonal variations, over the past 3 months a) sales/custom/bookings have

orders/advance custom/bookings have

3. Export Market Excluding seasonal variations, over the past 3 months a) sales/custom/bookings have

b) orders/advance custom/bookings have

4. The Labour Force a) Over the past 3 months, the workforce has

b) Over the next 3 months the workforce will probably


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e) The percentage of firms who have experienced recruitment difficulties over the last 3 months is:

51

40

25

32

f) Categories of employee Skilled manual/technical Professional/managerial Clerical Un and semi-skilled graduates skilled admin

63 25 3 8 0 0

52 13 13 21 0 0

40 20 10 20 0 10

64 21 0 14 0 0

improved remained the same worse % Balance

28 50 22 6

31 47 22 9

16 62 22 -6

25 55 21 4

improved remained the same worse % Balance

37 45 18 19

50 26 24 26

31 40 29 2

36 44 21 15

revised upwards unchanged revised downwards % Balance

27 62 11 16

34 60 6 28

26 69 5 21

27 69 4 23

revised upwards unchanged revised downwards % Balance

28 69 3 25

32 65 3 29

19 74 7 12

15 79 5 10

improve remain the same worsen

58 32 10 48

59 28 13 46

55 32 13 42

59 30 11 49

improve remain the same worsen % Balance

55 29 16 39

57 26 17 40

50 38 12 38

61 24 15 47

at full capacity is below full capacity is

45 55

46 54

41 59

29 71

increase remain the same decrease % Balance

27 68 5 22

20 74 6 14

33 65 2 31

30 66 4 27

9 48

5 57

11 51

11 44

5 a) Cash Flow During the last 3 months has your cash flow

5 b) Profits During the last 12 months has your profitability

6. Investment Plans - changes over the past 3 months a) Investment plans for plant/machinery/equipment have been

c) Investment plans for training have been

7. Business Confidence - next 12 months a) Firms confident turnover will

b) Firms confident profitability will

8. Capacity At the present time the percentage of firms working

9. Prices/Costs a) Over the next 3 months, the price of goods/services is expected to

b) Businesses currently suffering pressures to raise prices as a result of the following Pay Settlements Raw Material Prices


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Finance costs Other overheads * Due to rewording of the questionnaire these questions were asked prior to June 1997 in context of factors of concern to their business

10 32

14 24

13 25

10 34

5 21 11 17 21 13 4 9

5 19 11 20 21 11 2 11

5 16 14 17 22 10 3 13

3 21 16 16 22 12 1 8

Q2 2012 JUN %

Q3 2012 SEPT %

10. External Factors Firms were asked to indicate which of the following factors were more of a concern to their business than 3 months ago: Interest Rates Exchange Rate Business Rates Inflation Competition Corporate Taxation Better Industrial Relations Improved Cash Availability

Greater Birmingham QUARTERLY ECONOMIC SURVEY - March 2013

SERVICE INDUSTRIES

1. Main Activity Distribution, hotels/catering, repairs Transport and communication Financial and business services Other services Agriculture Other

Main Activity Q2 09 onwards Transport and distribution Retailing/wholesaling Tourism/hotels/catering Professional services Marketing/media Consumer services Public or voluntary sector services Other services Cultural/creative

Number of Employees 1-19 20-199 200-499 500+ 2. UK Market Excluding seasonal variations, over the past 3 months a) sales/custom/bookings have

orders/advance custom/bookings have

3. Export Market Excluding seasonal variations, over the past 3 months a) sales/custom/bookings have

b) orders/advance custom/bookings have

Q4 2012 DEC %

Q1 2013 MAR % 8 7 45 10 7 6

8 15 4 51 12 5

6 3 8

0 5 1

1302 5820 2858 6400

1125 5232 1433 5750

1141 5245 2003 10850

796 4157 950 2582

Increased remained constant Decreased % Balance

40 42 18 22

38 43 19 19

36 49 15 21

43 43 14 29

Increased remained constant Decreased % Balance

39 44 17 22

35 49 17 18

33 53 14 19

42 44 14 28

increased remained constant decreased % Balance

30 56 14 16

30 53 17 13

40 49 11 29

35 55 11 24

increased remained constant decreased % Balance

30 53 17 13

27 52 21 6

32 56 12 20

27 60 13 15


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4. The Labour Force a) Over the past 3 months, the workforce has increased remained constant decreased % Balance

19 70 11 8

23 68 9 14

22 67 11 11

22 71 7 15

Increase remain constant Decrease % Balance

26 70 4 22

23 72 5 18

13 81 6 7

20 78 1 19

c) The percentage of firms attempting to recruit is:

31

40

33

d) If yes: Part-time jobs Full-time jobs Temporary jobs Permanent jobs

19 37 12 32

16 43 12 29

18 36 13 33

17 41 12 30

e) The percentage of firms who have experienced recruitment difficulties over the last 3 months is:

26

36

16

26

f) Categories of employee Skilled manual/technical Professional/managerial Clerical Un and semi-skilled graduates skilled admin

42 18 7 18 2 13

34 34 11 5 2 17

38 15 12 19 4 12

26 41 15 7 0 11

improved same worse % Balance

26 56 18 8

27 55 18 9

25 59 16 9

30 59 11 19

improved remained the same worsened % Balance

33 49 18 15

40 43 17 23

35 43 22 13

46 38 16 30

revised upwards unchanged revised downwards % Balance

25 67 8 17

26 69 5 21

20 76 4 16

23 72 5 17

revised upwards unchanged revised downwards % Balance

27 68 5 22

18 43 39 -21

18 79 3 15

20 78 2 18

improve remain the same worsen % Balance

64 26 10 54

31 48 21 10

60 31 9 51

70 26 5 65

improve

69

32

58

68

b) Over the next 3 months the workforce will probably

5 a) Cash Flow Compared with 3 months ago the situation is

5 b) Profits During the last 12 months, has your profitability

40

6. Investment Plans - changes over the past 3 months a) Investment plans for equipment have been

b) Investment plans for training have been

7. Business Confidence - next 12 months a) Firms confident turnover will

b) Firms confident profitability will


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remain the same worsen % Balance

27 4 65

44 24 8

30 12 46

28 5 63

at full capacity is below full capacity is

44 56

34 66

45 55

35 65

increase remain the same decrease % Balance

17 77 6 11

9 51 40 -31

23 70 7 16

15 80 5 10

14 25 15 46

8 28 31 33

10 38 16 36

14 29 11 46

7 8 14 17 26 13 3 12

3 9 8 17 25 21 7 10

8 8 11 20 22 13 5 13

6 13 15 18 24 13 1 11

8. Capacity At the present time the percentage of firms working

9. Prices/Costs a) Over the next 3 months, the price of goods/services is expected to

b) Businesses currently suffering pressures to raise prices as a result of the following Pay Settlements Raw Material Prices Finance Costs Other Overheads 10. External Factors Firms were asked to indicate which of the following factors were more of a concern to their business than 3 months ago: Interest Rates Exchange Rates Business Rates Inflation Competition Corporate Taxation Better Industrial Relations Improved Cash Availability


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QES Q1  

The Quarterly Economic Survey (QES) is produced by Birmingham Chamber of Commerce Group (BCCG) every quarter to assess how businesses are re...

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