Latest business survey shows economic headwinds are gaining force
The economic outlook is weakening according to the findings of this quarter’s Economic Survey (QES) conducted by Greater Manchester Chamber of Commerce. The Greater Manchester Index, a composite indicator made of key QES measures, now stands at 31.3, a decrease of 1.0 point from the previous quarter’s results. Although the Greater Manchester IndexTM has hovered in the early 30s for five quarters, the latest results present the second consecutive quarterly decline. This is a clear indication that the recovery after Covid-19 related disruption is giving way to a less optimistic outlook brought on by high inflation and uncertainty around demand.
The survey of nearly 350 businesses held between May 16th and June 6th revealed that sales to UK customers increased marginally in the construction sector whereas in the manufacturing and services sectors, it declined considerably. The manufacturing sector seems to be particularly under stress: quarterly sales declined by 23 percentage points and advance orders by 25 percentage points. This downward trend matches available national data, which showed that the manufacturing sector recorded a reduction every month since January 2022. It now remains below pre-pandemic levels. Within services, B2C services were more impacted in Q2 than were B2B services.
Amidst the economic headwinds, there are some bright spots. Nearly two-thirds of employers are recruiting and four in five of those who are recruiting are looking to fill full-time positions. Business confidence also remains stable, at levels similar to what was recorded in the last two quarters.
Subrahmaniam Krishnan-Harihara, head of research at Greater Manchester Chamber of Commerce, said: “Inflation, continued supply chain disruptions and uncertainty around demand are having a clear impact on economic growth and business sentiment. We have been worried that inflation and soaring cost of living would affect consumer spending. That has now come to pass. The sharp decline in demand in B2C services is clear evidence that consumers are reining in expenditure. Data coming from the manufacturing sector is particularly concerning. Our members from the sector report that supply chain disruptions are a barrier to quickly accessing raw materials meaning they have to place orders well in advance. That affects their cash positions because more of their working capital is stuck in inventory. With uncertain demand, sales in the quarter have seen a reduction.
“It is a positive that many businesses are continuing to recruit. The only concern we have on this is that the competition for talent could fuel further wage inflation. Many businesses have increased prices to meet higher input costs and that could be driving optimism that they can maintain revenues.
“Business investment is lagging, and this is a serious ongoing concern. Since cash positions have further weakened in this quarter, investment in capital projects is likely to remain constrained. Ultimately it comes down to one thing: neither the city region nor the UK can rely on consumer spending for further economic growth. Consumers will continue to cut expenditure as energy prices increase further. Business investment needs to be unlocked and we urge the government to introduce measures to enable businesses to invest and expand capacity.”