2010 Opens With A Fragile Recovery

Liverpool Chamber of Commerce has published the findings of its Quarterly Economic Survey (QES) of employers in the Liverpool city region, covering Q4 of the business cycle. Overall, the cautious optimism of the previous QES is sustained, especially among the region's service businesses, although manufacturers continue to find trading conditions extremely harsh.

Some 400 businesses responded to the survey and if services and manufacturers are aggregated, the findings offer some degree of encouragement that the worst of the recession has passed and that business confidence is slowly returning. However, the recovery remains extremely fragile and there are widespread concerns around cashflow, corporate taxation policy and competition in domestic markets from countries emerging more quickly from recession than the UK.

Service businesses have seen significant rises in overseas sales (up almost 40%) and more modest improvements in domestic sales figures (up 2.9%). Overseas orders are also encouraging compared with the Q3 results. More service businesses anticipate recruiting in the next Quarter and plans for investment in capital plant and training are positive compared with recent reporting periods. As with the manufacturing sector, cashflow remains a major constraint on business growth, with 33% of respondents stating their cash flow positioned had worsened and only 17% reporting improvement since the previous Quarterly Survey.

In manufacturing, even this cautious optimism is hard to find. The dramatic falling off in domestic and overseas sales seen in Q2 is less marked in Q4 and international order books offer some encouragement but manufacturing businesses are continuing to struggle much more than service sector firms. Cashflow is a particular problem for manufacturers, with a minor improvement in the number of firms reporting a worsening position but with some 44% citing declining cashflow as a real problem. Only 15% reporting improvements (up from 14% last time). Despite this, manufacturers have continued to invest in capital plant and premises (up 5% on the previous quarter) but there was a disappointing dip in firms' investment in staff training and skills development.

Taken overall, the Q4 Survey points to a gradual increase in business confidence compared with the previous two quarters and when businesses were asked to speculate about the next twelve months, both manufacturers and services were optimistic about growth in turnover and profitability.

Commenting on the findings, Brian McCann of Vanguard, who is the Chairman of Liverpool Chamber's Finance Committee and a sponsor of the QES, said: "There are really mixed messages coming from the survey. It is clear that manufacturers are finding it exceptionally tough, especially in respect of cashflow, but overall there is a continuation in the improvements we first began to witness toward the end of Q2. The figures seek to exclude seasonal variations but it seems clear that the service sector - especially in Liverpool itself - is exceeding expectations and outperforming many other regions."