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Accession number & update
9303220179 930322.
Occurrences
PARAGRAPH
AN (1)
Title
A new survey.
Author(s)
Patrick Foley Chief Economic Adviser.
Source
Lloyds Bank Economic Bulletin 93/01/00 P. 1.
Publication date
930100.
Length
18,703 Characters, approximately 11 PC screens.
Article type
Survey; Statistics; Graphics in original.
Descriptors (KW CN)
Retail-trade; Business-confidence; Manufacturing; Construction;
Transport; Wholesale-distribution; Business-services; Regional-
data.
Country
UK, EC.
Text
1 OF 2.
This Bulletin reports the results of a new survey carried out by
Lloyds Bank Commercial Service among its `middle market' business
customers. The survey was designed to find out more about the way
business customers see their current problems and opportunities,
including their perceptions of the wider economy. 1,465
businesses replied from all sectors, making this a bigger and
wider ranging survey than the CBI Industrial Trends Survey. The
survey sheds light on businesses' perception of the current and
immediate past economic environment, and on their expectations
for future performance. Businesses involved will have had time to
fully absorb the likely impact of sterling's fall since
September, and the 3% reduction in interest rates. The impact of
recession
When asked how long ago did the recession first start to affect
your business' replies were surprisingly similar across the
country, given the prevalent belief that recession has only more
recently affected the North. Nevertheless, London, the South
East, the South West, Thames Valley, and Eastern regions (all
regions are Lloyds Bank definitions) all gave answers averaging
slightly longer than the national figure (which was an average of
just over 1 1/2 years ago), whilst South Wales and Severnside,
Midlands and North Wales, and the North were all slightly
shorter. The answers suggest that firms started being affected
first in the South, but the spread of the recession to other
areas was very rapid. Even in the South, some 10% of firms
reported that the recession started to affect them only 6 months
ago. Respondents were asked to choose the three most important
effects of recession on their business, in order, from a list of
9. Using a weighted average of all answers (with factors listed
first being given a higher weight than those listed second, and
so on) falling demand was the most important, with price
pressures second, falling profits third, and cashflow problems
fourth.
56% answered yes to the question are you experiencing cashflow
problems as a result of the recession', the proportion being
highest for the smallest businesses, and lowest for the largest.
Cashflow problems were reported more often in London (63%) than
in any other region. Construction (64%) suffered more cashflow
problems than any other sector, hotels and catering the least.
The major reasons cited for problems were late payment (the most
important reason for 39%) and lack of business (most important
for 33%). Of other reasons quoted, default by customers was
particularly important for the wholesale and distribution sector,
many of whose customers will be retailers hit by the lack of
recovery in consumer spending. In answers to questions on payment
periods, we found that businesses had to wait 58 days on average
for payment, but their own policy on average was to pay in 51
days. Small firms had to wait longest for payment, but had to pay
in the shortest time. 55% of respondents said that they had to
wait longer for payment than a year ago (this being slightly more
common among small business and among those based in London, the
South East and in Midlands and North Wales). There was no clear
pattern across industry sectors. 38% of respondents said that,
over the last year, they had extended the period they take to pay
their creditors, this being more common among small businesses.
2 OF 2.
Business confidence
A large majority of respondents reported that their industrial
sector, and they themselves, were less confident than six months
ago. 81% of those from the construction industry reported that
the sector was less confident, whilst only 3% felt that the
sector was more confident. The retail sector also appeared to be
particularly depressed, presumably because the hoped-for recovery
in consumer spending has not occurred. It is interesting,
however, that despite this sharp decline in reported sector
confidence, a much smaller balance of respondents reported that
they were less confident about their own business. This could be
due to one or more of three factors. First, respondents may be
showing undue optimism about their own prospects, or undue
pessimism about their sector's prospects. Second, they could be
overstating optimism because it is their bank conducting the
survey (though the survey form is designed so that it does not
reveal the identity of the respondent). Third, Lloyds Bank's mix
of customers could be unrepresentative of the sector.
The question tells us only how confidence has changed in the
recent past, not about how confident respondents are about the
future. But forward looking views are revealed by a series of
questions on expected changes over the next six months in order
books, turnover and profitability. The tables give the results
from these questions, broken down by region (table 1), industry
sector (table 2) and business size (table 3). The tables report
the percentage balance of those expecting an increase minus those
expecting a decline. To determine an overall confidence index, we
have taken an average of the results from the three questions. In
the first two tables, regions and sectors are ranked according to
this measure of overall confidence. In only one region could it
be said that confidence is negative. In Midlands and North Wales,
a balance of 13% of firms expect profitability to decline even
though a majority expect turnover to rise. This appears to be
because optimism about order books is lacking. In most other
areas, respondents on balance expected turnover, order books and
profitability to rise over the next six months, though the
Eastern and South West regions appear less certain as to
profitability. The most optimistic region of all is London, with
the rest of the South East also relatively optimistic. Both
regions are particularly optimistic about turnover, which is the
factor over which firms have the most direct influence;
expectations about turnover are more likely to be proved right
than those about profitability or order books. Though perhaps
surprising, the relative optimism of London and the South East
accords well with the conclusions of a recent Bulletin which
suggested that the South East might be one of the first regions
to recover. The North region also appears optimistic,
particularly about order books and turnover, whereas the Midlands
regions (Lloyds Bank's Eastern region includes parts of the East
Midlands) and the South West are relatively depressed.
Why is it that there appear to be significant differences in
confidence between regions? The variance cannot be explained by
differences in industry mix. We have calculated from the regional
mix of businesses in the survey, and from the industry confidence
pattern shown in table 2, what the regional confidence balance
should be if industry mix is the key factor influencing
confidence levels. The results suggest that regional differences
in confidence appear to be unrelated to regional industry
strengths. It shows regional confidence balances taken from table
1, and what each region's balance should be if industry mix was
the only determining factor. Almost all regional variation in
confidence is due to other factors; London appears to owe some of
its relative confidence to its mix of industry. But the North is
not more confident, and Midlands and North Wales less confident,
because of industry mix. According to its industrial profile, the
Eastern region ought to be one of the most confident regions; in
fact it is one of the least confident.
As outlined, table 2 gives the figures for each industry sector
on which this regional analysis is based. The sectoral confidence
ranking is much as would be expected. In particular, the
construction sector remains much more depressed than any other,
on all three measures. It is especially striking that this sector
expects further declines in order books and turnover given the
already extremely depressed state of the industry. In replies to
a question on order books, 51% of construction businesses
reported that their order book had declined in the last six
months, a larger percentage than in any other sector, whilst only
21% said orders had risen. 57% of construction firms cited lack
of business as the most important impact of the recession,
compared with 44% for all other industry. Other noteworthy
features of the sectoral confidence figures include the
relatively depressed state of the retail sector. Though a small
positive balance expect turnover to rise, a majority expect any
change in profitability or order books to be for the worse. This
is probably the direct result of the collapse in confidence in
this sector in the last six months. Retailing appears to have
suffered a decline in confidence almost as large as that in
construction, related of course to the lack of recovery in
consumer spending. With the exception of hotels and catering,
where little change is expected in the next six months, most
other sectors appear on balance relatively optimistic. However,
some of the optimism expressed by the wholesale and distribution
sector could prove misplaced if retailers' pessimism is correct.
Turning to a breakdown of confidence by business size (table 3),
the smallest firms appear the least optimistic on balance. This
could be partly explained by the relatively large number of
construction businesses in this turnover range (21% of all
businesses, compared with 15% for the whole survey). However a
more rigorous analysis of the industry mix by business size,
similar to the analysis by region, suggests that mix accounts for
only a very small proportion of the lack of confidence among the
smallest businesses. Regional differences in the preponderance of
small firms do not appear to explain the confidence pattern
either. The answer may be related to the cashflow squeeze on this
sector between larger creditors demanding quicker payment and
larger debtors delaying payment, discussed briefly above. There
is a similar lack of confidence in the #5-9.9m turnover band,
more specifically owing to low expectations about profitability,
which industry or regional patterns are again unable to explain.
This is not so readily accounted for by cashflow problems. We
will probably have to wait for further surveys to draw firmer
conclusions. Respondents were asked about inflation expectations.
On average they thought that the rate of inflation would be 4.2%
in six months time, higher than most forecasts. The survey has
some evidence on excess capacity, and therefore indirectly on
likely future inflation trends. 70% of all respondents reported
that they were operating below capacity, with the highest numbers
being in construction (82%), transport and communication (74%)
and manufacturing (74%). The lowest percentages of businesses
reporting excess capacity were in the aeother' sector (61%),
business and other services (62%) and wholesale and distribution
(65%). Perhaps surprisingly, given problems recently, the hotels
and catering sector showed a slightly smaller than average
percentage (68%) working below capacity. The large numbers of
firms working below capacity appears to suggest that inflation
pressures, at least from the medium sized business portion of
industry, will be small in any upturn. However, a breakdown by
region shows the highest amount of spare capacity in the Midlands
and North Wales (79%) and the South West (72%), and the lowest in
London (63%), Eastern region(65%) and the South East (66%). If
business expectations about the regional pattern of recovery,
discussed earlier, are proved right, then it may be that the
spare capacity is in the wrong parts of the country. Summary
1. A new business survey carried out by Lloyds Bank Commercial
Service among medium sized commercial customers in late November
and early December suggests that businesses are on average
confident of some upturn in the next six months.
2. Confidence appears to vary significantly by region and by
business sector. London and the South East are relatively
optimistic regions, as is the North. Confidence appears solidly
based in these regions since it is founded on expectations of
increased turnover rather than order books. The Midlands remains
relatively pessimistic, especially about profitability.
3. Looking at industry sectors, the most striking lack of
confidence is shown by Construction, which, despite having
suffered more than other sectors already, expects on balance that
order books, turnover and profitability will all decline further
in the next six months. Retailers are also relatively
pessimistic, presumably due to the slow speed of consumer
spending recovery.
4. The smallest businesses surveyed expressed the least
confidence about future prospects.
5. Variations in confidence between regions, and by business
size, are not explained by variations in industry mix, and
therefore appear to reflect genuine differences in confidence
between regions and between businesses of different size.
6. There is evidence of significant excess capacity in most
sectors of industry, which suggests that inflation pressures will
not be strong as the economy recovers. However, there appears to
be more excess capacity in regions of the country least confident
about recovery. Table 1
BUSINESS CONFIDENCE BY REGION
Expectations over next 6 months
Balance, up South South Wales Thames
minus down London North East & Sevenside Valley
Turnover 22 19 21 16 15
Profitability 11 7 5 7 2
Order books 16 20 11 14 8
Average 16 15 12 12 8
Balance, up South Midlands &
minus down All Eastern West North Wales
Turnover 13 8 3 10
Profitability 1 -6 -3 -13
Order books 8 7 6 0
Average 7 3 2 -1
Table 2
BUSINESS CONFIDENCE BY MAIN BUSINESS Expectations over next 6
months
Balance, up Transport & Business & Wholesale
minus down Other communication other services &
distribution
Turnover 31 25 25 21
Profitability 17 17 16 5
Orders 21 18 16 16
Average 23 20 19 14
Manufac-
Balance, up turing & Hotels &
minus down production All catering Retail
Construction
Turnover 18 13 3 3 -16
Profitability 4 1 -5 -4 -24
Orders 19 8 1 -3 -19
Average 14 7 -0 -1 -20
Table 3
BUSINESS CONFIDENCE BY TURNOVER SIZE Expectations over next 6
months
Balance, up
minus down All <#1m #1-1.9m #2-4.9m #5-9.9m #10-24.9m
>#25m
Turnover 13 5 18 19 7 16
14
Profitability 1 -3 5 1 -9 4
11
Orders 8 -1 16 13 7 16
14
Average 7 0 13 11 2 12
13
Copyright: (C) Lloyds Bank Plc 1993. All rights reserved.
Label/description Example
AN Accession number 1_: 9303220179
& update - see Limit options -
OC Occurrences - Display only -
TI Title 2_: NEW ADJ SURVEY.TI.
AU Author(s) 3_: FOLEY.AU.
SO Source 4_: LLOYDS ADJ BANK.SO.
DT Publication date
DATE= Publication date YYYYMMDD 5_: DATE=19930100
MONTH= Publication month YYYYMM 6_: MONTH=199302
YR Year
YEAR= Publication year YYYY 7_: YEAR=1992
LE Length - Display only -
AT Article type 8_: STATISTICS.AT.
CO Company names 9_: BUNDESBANK.CO.
DE Descriptors (KW CN) 10_: RETAIL-TRADE
11_: REGIONAL ADJ DATA.DE.
KW Keywords 12_: SCOTLAND.KW.
CN Country 13_: UK.CN.
TX Text 14_: BUSINESS WITH CONFIDENCE.
1_: UK
DATE Publication date YYYYMMDD 2_: ..L 1 DATE>19970726
MONTH Publication month YYYYMM 3_: ..L 1 MONTH EQ 199712
YEAR Publication year YYYY 4_: ..L 1 YEAR GT 1995
UDATE Update date YYYYMMDD 5_: ..L 1 UDATE<19980131
UMONTH Update month YYYYMM 6_: ..L 1 UMONTH LT 199607.
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