Manufacturers struggle to raise prices

Manufacturing orders remained well below normal in May and order books are now at levels last seen consistently in late-2003 according to the

monthly Industrial Trends Survey, published today.

While firms expect output to remain flat over the coming quarter, the key finding this month appears to be the deterioration in price expectations.

Despite intense cost pressures, notably from oil and metal prices, manufacturers expect to find it difficult to increase their own prices at the factory gate in the coming months. Oil prices averaged in excess of $50 a barrel during the survey period and metal prices were more than 16 per cent higher than at the same time last year. Yet, 20 per cent of firms said they expected to reduce their own prices over the next three months while 17 per cent said they expected to increase them. The balance of minus three per cent represents the weakest expectation since March 2004.

Forty-one per cent of firms say their order books are below normal, while 19 per cent say they are above normal. This survey's balance of minus 22 per cent is broadly in line with minus 24 per cent in the previous survey. Although demand for capital and consumer goods remains subdued, particularly weak order books are being experienced by producers of intermediate goods - products such as components and chemicals which are subsequently used up in the production of other goods.

Export order books remain below normal, 32 per cent of respondents saying orders were below normal while 16 per cent said they were above normal. The balance of minus 17 per cent compares with minus 24 per cent in April and is close to the average of the past nine months. Producers of consumer goods reported export orders at their least negative for thirteen months.

Output is expected to remain flat over the next quarter with firms scaling back expectations for the third successive survey. There is significant divergence between the sectors; producers of food, drink and tobacco and chemicals expect robust output growth, while metal manufacturers expect a sharp decline in output.

The monthly Industrial Trends survey was carried out between 26 April and 18 May 2005, with 803 manufacturers responding. During the survey period, sterling averaged €1.47 (DM 2.87) and $1.88 compared with €1.46 (DM 2.85) and $1.88 in the April 2005 survey.