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As ever, recent contradictory headlines in the business press have me wondering which is right? Surely the BoE’s statement that QE is back on the agenda in the face of ‘weaker than expected growth’ as is at odds with GDP surging to its highest level for 4 years?!
Looking at the fundamentals, US commodities are off their May lows, and the commodity shipping market has also rebounded on the back of increased demand for steel in China – all good signs in that this indicates demand is rising, although less good if we hoped for some relief with petrol pump prices!
Closer to home, manufacturing output was reported to be at its highest for 15 years with strong domestic and overseas demand, and is set to continue rising albeit at a slower rate over the next 3 months. I was very surprised to read in the CBI Survey that more firms have reported credit availability improving, as this not what I’m hearing. I wonder if this loosening of credit is applies only to the larger firms – I would be keen to hear if any interim managers agree with the CBI findings?
It remains a tough market out there for interim managers specialising in the manufacturing sector, as the mixed messages in the Press testify – last month, we were led to believe that growth figures were going to be revised down, something that looks highly unlikely this month!
However, storm clouds do remain on the horizon – the PIGS economies panic has subsided to a murmur for the time being and the LIBOR rate remains high, but few companies are seemingly prepared to commit cash from reserves for projects. I am beginning to see an increase in finance led projects, driven in the main by the banks but operational projects remain subdued. My view is that payback periods are perceived as being too long, or the returns not deemed to outweigh the benefits of cash in the bank pending the uncertain outlook. Is this a view shared by readers?
In summary, I sense that the recovery feels more resilient than the headlines give credit for although as a business, we’re seeing very clearly that demand for interim’s varies between sectors. Financial Services (Insurers/ Retail Banks) is booming, Retail is having a tough time as is the Public Sector. Demand in the manufacturing sector remains patchy but there are opportunities, even if finding them is taking rather more effort! Historically, FS has led the UK economy out of recession – will it be the case this time, and if so, is all we have to do hold on for the next 6 to 8mths until the recovery spreads to other sectors? What are your thoughts?
Tom Legard is Head of Manufacturing at Interim Partners.
Good news on the surface, but a very worrying forecast.
Lets review the good news first! The Purchasing Managers Index remained at 58 for a second consecutive month in May (it stood at 45 last May – the highest reading at that point since April 2008) as UK manufacturing rebounds on the back of a continued buoyant export demand, and inventory re-stocking. Employment levels also rose for a second month in a row after almost two years of job cuts.
In terms of interim manufacturing assignments, Q2 activity mirrored the manufacturing rebound, with a good increase in the number of new assignments after a very quiet Q1. These have almost exclusively been in the Finance and Operations areas and although day rates remain under pressure, I’m seeing a much higher percentage of interim managers reporting that they are currently engaged compared to 12mths ago.
Great news all round – something we’ve all been waiting for, for a long time!
Now the bad.
The speed of deterioration in the Southern Eurozone to the point that it’s now a case of when Greece leaves the Euro, was unthinkable even 3 weeks ago. We all know what this means – the inter bank rate is already back up at levels last seen before the onset of the credit crunch. I had hoped this outcome had been at the very least postponed after Germany supported the emergency package, but I fear the market’s have decided otherwise and I’m pessimistic that the Eurozone can recover.
A second piece of news out today, and to my mind key, is regards US commodity prices. Their index of 18 industrial materials fell by an astonishing 57% in May, the biggest fall since October 2008. This is a worrying indication that growth forecasts will almost certainly be revised downwards later this year – and not just for the US.
In summary, short term I think demand will continue, but it’s likely to be patchy and continue to be frustrating for many interims as competition remains fierce. Longer term, who knows – as we’ve seen from Greece, sentiment can swing wildly between extremes and whilst the current outlook is not good it’s been worse.
With the drop in commodities and oil, at least pump prices may give us something to smile about in due course!
We continue to see mixed messages in the business press in terms of the state of manufacturing in the UK. Recent articles have highlighted UK factory output rising and in the next breath we read that more manufacturing companies are making redundancies than hiring.
The biggest threat to the manufacturing sector’s recovery was the possibility that Greece would default – thankfully the crisis was averted (or postponed!) and the global credit markets sighed with relief, rallying immediately.
Domestic uncertainty with the non-outcome of our General Election continues! The horse trading behind closed doors may dampen activity short term until we know who will govern the country, but the upside is that the uncertainty will continue to depress Sterling the benefits of which are now clearly being felt in increased exports.
Commodities is still a problem, oil continues to hover around $80 a barrel hurting both business and consumers, funnelling more cash away from the manufacturing sector that remains unable to increase prices with demand is still very fragile.
However, on a brighter note, I have definitely seen increased levels of activity with a number of interim managers recently beginning new assignments. Many roles are finance orientated at this point, but project management roles focussing on implanting cost reduction or improvement programmes are also slowly picking up after the extreme quiet we all experienced in Q1.
Summer is coming – and it promises to be better than the last, lets hope the weather is too!
Tom Legard is Head of the Manufacturing Practice of Interim Partners.
My gut feeling that the Manufacturing sector was taking a battering have sadly been confirmed with publication of the latest figures from the ONS.
The Times reports today: “Sterling plunged further against the dollar after official figures revealed British manufacturing output unexpectedly fell in January at its sharpest monthly rate since last August. The Office for National Statistics (ONS) said output had declined by 0.9 per cent at the beginning of the year, compared to December, marking the biggest drop since last August and falling far below analysts’ expectations for a rise of 0.3 per cent. However, comparing January to the same month last year, output rose by 0.2 per cent.”
There is speculation that poor weather played a part in this, but there’s also speculation that the Q4 improvement last year was solely due to restocking. I fear it was the latter, in which case prepare for the inevitable political invective as Gordon will have to run very hard for his money! Time will shortly tell if it is, however, I’m very keen for readers to share their thoughts on the possible causes – and possible cures.
Before Christmas I felt fairly optimistic that we were moving back towards positive territory – and sure enough, Q4 GDP figures confirmed exactly that. All good. The Purchasing Managers’ Index rose to a 15-year high in January. Even better.
So why has the manufacturing and engineering interim market gone rather quiet? A number of interims have reported that despite enquiries picking up in January, there has been a marked decrease in activity over recent weeks.
I would be interested to know from readers if this is more widespread and their thoughts as to the cause for this? Please add your comments.
The view that recruitment bears a very close correlation to client activity would indicate a flat first quarter for GDP, and possibly worse for manufacturing. The marked increase in activity from the Financial and Business Service sectors appear to be fundamental in underpinning the overall recovery, and will I think prevent the much talked about ‘Double Dip.’
Whichever way we look at it, the recovery is very fragile and data remains mixed – surveys announced consumer confidence reaching a two year high whilst spending declined; new care sales rose again, whilst house prices fell.
So where does this leave us?
Certainly in a better place than 12mths ago, the free fall in orders and revenues have stabilised; costs have been slashed via a combination of pay cuts; reduced shifts and redundancy and the figures for the manufacturing payroll have seen a slight rise which bodes well for the longer term.
Ultimately, it’s going to be another tough year – let us hope the IMF comes to the aid of Greece and the election does not result in a hung parliament!
I think it is fair to say that all the interim managers specialising in the manufacturing and engineering sectors were painfully aware that the Prime Minister’s optimistic view that the economy was returning to growth in Q3 was nonsense – to be fair, even the City analysts got it wrong with the fall in industrial output of 2.5% far greater than their forecasts of a 0.2% rise.
Equally, I sense that we will return to positive territory in Q4 (if only just), based on the amount of increased activity Interim Partners has seen across the Private Sector, in particular since late October.
Recruitment bears a close correlation to economic conditions, and the surge in enquiries and a number of placements across all sectors suggests we are finally beginning to see those green roots become established. Our interim managers have also sensed an upturn in activity with more potential opportunities in the offing, even if they are still slow to convert.
Clients are also in the main, more confident now than they have been for the last 12 months – they caution that we’re not out of the woods yet, that the recovery is fragile, but they also add that numbers are recovering and the initial panic is over.
So what can we expect next year? I would be interested if you would share your thoughts with me. Key factors to my mind are as follows:
Commodity Prices: Oil in a word. Soaring oil prices will inhibit prospective growth
and were a major factor in tipping manufacturing further into the red. With prices
hovering at the $80 barrel mark there’s a danger that growth is already stalling, and
pump price increases are already hitting consumers where it hurts.
Quantitative Easing: At some point this has to stop. It’s going to be a tremendous
challenge to a new Government to manage the process without harming credit
streams, and to continue pushing taxpayer majority owned banks to meet Whitehall
imposed lending targets.
Tax rises: At some point these will have to rise to pay off the above, and again,
consumers will have less to spend.
The Dubai Effect: This barely caused a ripple in London, but raises the spectre of
ghosts past. Default on a larger scale would cause London and the credit markets to
implode.
Which ever angle you look from, it seems next year will be steady – yes, fears over the UK economy and national debt is devaluing Sterling, good for exports; yes, consumer confidence is much stronger, reflected in house price increases; and yes, the bankers are receiving huge bonuses again – always the sign of the good times… right?!
However, there’s no escaping that in manufacturing and engineering it’s a tentative recovery. I can’t see strong economic growth occurring for quite some time to come, and I expect next year to be a repetition of the stop:start growth pattern experienced over the last 5 months. But I don’t see those green shoots wilting
Tom Legard is a Senior Consultant in the Manufacturing Practice of Interim Partners.
It’s interesting talking to the interim community as it enables me to constantly monitor and gauge market activity and trends. In summary, the message I’m currently getting is that the market is patchy and mixed.
Yes, we have seen a substantial increase in activity since June that has translated into a new record in terms of quarterly performance figures for Interim Partners, and yes, the pundits are forecasting that the UK economy will return to positive growth by the year end.
However, we’re not seeing the expected September bounce that many hoped for, and I still feel that a ‘recovery’ is not on the cards for quite some time.
My guess is that this will be Q3 next year at the earliest, particularly for the following reasons:
The latest figures from both the US and UK that underlines the fragility of the housing market, which in turn closely corresponds to consumer confidence. Activity has fallen both here and across the Atlantic this month.
Unemployment is still rising and consumers are saving money rather than spending it – albeit still at historically low levels, but mortgage and loan repayment rates are increasing.
If we also combine this with our economy typically lagging the US by a good 6 months, and a desperate Prime Minster overruling his Chancellor to say that we have already returned to growth, it leads me to think that although the Green Shoots are not exactly wilting, they’re not growing particularly strongly just yet!
Tom Legard is a Senior Consultant in the Manufacturing Practice of Interim Partners
The latest data from the ONS leads me to ponder why is it that the marked increase in activity I’m experiencing, is at odds with the fact that factory gate prices fell at their fastest level since 2001 last month, and input prices continued to rise?
June and July have been particularly busy for me with a number of international placements that will underpin a strong Q3 performance for the Manufacturing & Engineering practice. Sectors that have been particularly active include Chemicals and Packaging, against which, the precision engineers are still quiet in the main – as an aside, Interim Partners is looking at a record monthly performance for July.
How does this sit with the conflicting statistics for factory gate prices, and what does it mean looking forward to the year end and 2010?
It’s always interesting to look back and review the year to date, and the effects of Government initiatives. The much trumpeted Credit Insurance scheme that I felt could potentially provide the catalyst to enable companies to continue trading through the credit crunch didn’t materialise – an interesting comment from an interim runs thus: ‘… we finally got ourselves through to the department responsible who then told us that they had no idea what they were meant to do or how they would do it.’ Sound familiar?
That being said, the economic news is positive, and those who scoffed at Alastair Darling’s forecasts for the economy look to have been wrong footed. The huge sums of money ‘thrown’ at the banks to release credit lines to the market, and the Bank of England’s policy of quantitative easing appear to have had the effect of reversing the steep decline we experienced far more rapidly than anyone expected – GDP increasing by 0.1% in May following a similar increase in April. Tentative, but broadly in line with data elsewhere from the housing market to the Purchasing Managers Index and, more importantly, with consumer confidence – perhaps this the summer we were hoping for, after green shoots were somewhat prematurely spotted by those in high office back in January!
It’s certainly more positive from where I’m sitting and despite trading conditions for many of my clients remaining challenging, there has been a marked increase in enquiries from clients. This is also true of the experiences of our interim managers, for whom in the manufacturing sector, has been a tough Q1 and Q2, but who are now seeing more potential assignments in the offing.
This quarter has seen requirements for Operations, Supply Chain and Finance interims – I’m delighted to have placed a top level Operations Director in Germany and fully expect to have a Supply Chain/ Ops Director and a Financial Controller (in India) placed by the month end. Fierce competition for assignments makes it a buyer’s market, not so much in terms of day rate, but in terms of experience and candidate profiles exactly matching briefs – not a long term trend and in my view a current ‘luxury’ for clients as demand catches up, but still frustrating for interims who come close, but just not quite.
Surprisingly, demand for Turnaround Specialists remains ‘cool’ although more encouraging feedback suggests that banks faced with the unexpected, and largely unwanted ownership of PE backed businesses now under water, are investing resource in turning these businesses around. Certainly there seems to be more interest from the banks, and my expectation is that there will be a subsequent increase in demand for turnaround specialists – albeit with specific industry experience, and an exact match for the client’s candidate/ job brief…
Tom Legard is a Senior Consultant in the Manufacturing Practice of Interim Partners.
Finally some good news – aside from the excellent article in yesterdays Financial Times extolling the virtues of Interim Managers! – is another article in the Financial Times today announcing a centre piece of the coming Budget, to set up a state guarantee scheme to underpin supply-chain insurance. This will make a difference – and is possibly the catalyst that we have been waiting for to boost the fortunes of the battered manufacturing and engineering sector.
Back in January, banks pulling credit facilities was the main cause of business failures, by early March this had changed. Businesses struggling to get credit insurance were failing, despite having money in the bank and no debt – simply because suppliers were then forced to demand payment up front and the ensuing cash flow shortage was enough for nervous Banks to call in the Administrators.
Of course, this Government is renowned for announcing schemes which then seemingly fail to materialise – I’ve yet to hear of the loan guarantee scheme to help a business and I’m not sure what happened to lenders giving homeowners a longer grace period!
That said, in discussions with interim managers the view has been that the recovery cannot begin until businesses can trade, free of the shackles imposed the financial system – my view was that as soon as Brown et al woke up to the fact that bailing out the banking sector was not enough if people were still losing their jobs (and to keep theirs), and began to ensure that companies, albeit struggling with the massive overnight downturn experienced, were able to trade through the recession, then recovery could begin.
Lets hope this is the beginning – there is still a lot of gloomy news, and certainly this good piece of news has come too late to save many, but it may be the signal we have been waiting for to enable companies to start projects put on hold as credit eases, and for the banks to invest in their clients by bringing in the specialists interim skills desperately needed to make efficiencies and savings for struggling businesses to survive today, whilst ensuring that their infrastructure is in place for the eventual upturn – I wish I could say tomorrow.
