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Cronicile

Manufacturing industry: Production volume at the highest level of 11 months. But managers do not trust this trend sustainability

de Adrian N Ionescu 30.4.2017

In March 63.6% of the Barometer indicators show positive changes compared to the previous month, a similar percentage to the one registered in February, while the other indicators stagnated or declined.

Although, the authors of the IRSOP and SNSPA study, managers do not show any signs of confidence in the sustainability of this momentum.

The vulnerabilities of the manufacturing sector in the first three months of the year remain the production costs, the prices of the industrial products and investment costs, mentions the study.

Survey methodology:

IRSOP and SNSPA ask a sample of managers whether the production, orders, stocks, employment, and other parameters have increased or decreased compared to the previous month.

The net difference between the answers signals an expansion if the index exceeds 50 points and a decline if it drops below 50.

*

  • Indicator of total volume of production
  • Diffusion index*           Expansion (>50)
  • Contraction (<50)
  • * it represents half of the percentage of those stating that the situation remained unchanged, plus those who reports an increase

*

Conclusions

  • Production volume rose from 53 points in February to 64 in March reaching the highest level of the last 11 months. The strong revival seems to be boosted by the increased demand for exports.
  • New orders overall reached 63 points, a similar level to the production volume.
  • Export orders had the strongest increase, from 59 points in February to 69 in March. This level has never been reached in the past 29 months since the Barometer measurements started. The sky brightens up for the manufacturing industry. 60 57 51 60 56 55 42 35 53 64 56 61 69 55 44 20 30 40 50 60 70 80 Expansion (> 50) Contraction (<50)
  • Imports in the manufacturing industry mainly sustain the production process for export and increase with the external orders. In March, the imports of raw material went up to 65 points, compared to 57 in February.
  • Stocks also had a slight increase, from 44 in February to 48, but remained in the contraction range. The restocking rate is slower due to the rapid export of products and the very low level of stocks reached in recent months.
  • Production costs went up by one point, to 71 compared to 70 in February, and represent the indicator the highest negative value of all business performance indicators.
  • Prices charged by companies have slightly fallen from 60 to 58, which, due to the production volume increase, may be an effect of the economy of scale or the widening gap between orders and companies’ revenues.
  • Investment expenditure has been for three months between 51 and 53 points, below the levels in 2016 and below the average level of the last 29 months. These vulnerabilities might partially explain why manufacturing companies do not hurry to recruit new staff.
  • The number of employees contracted in January to 43 points, went back to 50 in February, between contraction and expansion and fell again in March in the contraction range, to 48 points.

Managers’ expectations for next 6 months: they do not trust this trend

  • Have slightly softened, compared to last month
  • The optimism indicator, calculated as an average of the aggregate hopes regarding the demand, production and receipts, declined in March to 63 points compared to 66 in February. An explanation is the fluctuation of the orders, and especially the previous experience with the strong decline from late last year and early 2017.
  • Managers do not seem certain that the increased pace of the current demand will still remain at the same level six months from now.

The study has been conducted by IRSOP and SNSPA – the Faculty of Management on a sample of 300 manufacturing companies representative for the 15,200 manufacturing companies with more than 9 employees from Romania and contributing about 95% of the total turnover of the manufacturing sector.

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