West Midlands monthly economic update report August 2010

The August 2010 economic update report (pdf, 482kb) from Advantage West Midlands is now available.

The report includes headlines and statistics, both national and from the West Midlands, on the state of the economy, inflation, the labour market, house prices, manufacturing, automotive, services sectors, construction, and retail.

The updates are published monthly here.

Inward investment into the West Midlands 2009/10 – a local analysis

In 2009/10 there were 84 inward investment successes in the West Midlands and another four knowledge-based investments. These investments created over 1,500 new jobs and safeguarded another 4,300.

Although these 88 investments represented the lowest number of jobs created or safeguarded since 1992/93, they also represented the 7th highest total number of projects since 1991.

Pie chart shows 38 inward investments in West Midlands metropolitan areas and 49 inward investments in the shire counties over 2009 to 2010Inward investment is usually spread reasonably evenly between the West Midlands metropolitan areas and the shire counties. In 2009/10 the shire counties attracted the majority of inward investment projects (55%). See left.

However, the metropolitan areas of Birmingham, Coventry, Solihull, Dudley, Sandwell, Walsall and Wolverhampton have attracted perhaps just over half of the projects over the years – see below. The number of jobs created and safeguarded also generally follows a similar pattern.

Stacked bar chart shows percentage of inward investments into West Midlands metropolitan areas versus shire counties between 1991 and 2010

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The multiple risk factors of worklessness

By isolating the ‘risk factors’ and certain combinations of ‘risk factors’ associated with a person’s chance of being out of work, new analysis from the West Midlands Observatory can help decision makers get to grips with the complex interplay of issues behind the current high rate of worklessness across the West Midlands.

The research is already informing the Department for Work and Pensions in its review of welfare policy, as it provides insights into the major factors influencing a person’s chances of being in or out of work. It shows that these chances can vary greatly according to the individual’s background and personal characteristics. The research demonstrates how combinations of factors such as having no formal qualifications or a long-term health problem or disability, or being a lone parent, affect a person’s chance of being out of work.

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Transformational change can generate substantial new jobs in West Midlands over next five years

The pace of economic growth in the West Midlands over the next five years is forecast to be modest. Only 11,000 net new jobs (representing growth of 5% in total employment) are expected to be created between 2010 and 2015.

However, the Observatory’s new report The West Midlands economy post recession: key issues and challenges (pdf, 844kb) includes scenarios illustrating the benefits for the West Midlands in terms of new job creation — if action is taken to support fundamental, transformational change.

Scenario one: up-skilling the workforce within existing businesses

If workforce skill levels in the West Midlands were raised to match the England average, it’s estimated that net increase in employment over the next five years would almost double to around 21,000 jobs.

The main beneficiaries would be sectors where skill gaps and shortages act as a significant constraint on growth, such as:

  • ICT
  • High value added business & professional services
  • Wholesale & retail distribution
  • Transport

Scenario two: up-skilling plus diversification of the economy

If more businesses in higher value added sectors and clusters were also attracted to the West Midlands, such that their share of GVA matched the England average, the impact would be much more significant with the creation of more than 200,000 net new jobs.

High value added activities such as high value added business & professional services (where more than 100,000 net new jobs would be created) and ICT (30,000 net new jobs) are notable beneficiaries.

There would also be modest increases in employment levels in engineering (nearly 3,000 net new jobs) and manufacturing (nearly 6,000 net new jobs).

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Read more about the future of the West Midlands economy in our report:

Replacement demand set to be key source of jobs in West Midlands over next 5 years

An under–representation of higher value added sectors means that the pace of economic growth in the West Midlands over the next 5 years is forecast to be modest. Only 11,000 net new jobs (representing growth of 5% in total employment) are expected to be created between 2010 and 2015.

But the Observatory’s new report The West Midlands economy post recession: key issues and challenges (pdf, 844kb) predicts an additional 860,000 job vacancies are expected to arise between 2010-2015 due to ‘replacement demand.’

It’s estimated that nearly 510,000 jobs (58% of all job vacancies) will be due to labour turnover and more than 350,000 jobs (40% of all vacancies) will be due to older workers retiring.

Pie chart shows overall job vacancies forecast in West Midlands between 2010 and 2015

Text description of this chart available. Chart prepared by West Midlands Regional Observatory based on Cambridge Econometrics forecasts and Office for National Statistics Labour Force Survey.

Replacement demand is forecast to be more significant in traditional private sector industries and public sector activities which have an ageing workforce. For example:

  • 59,000 vacancies are expected to arise in manufacturing
  • 50,000 vacancies are expected to arise in engineering
  • 37,000 vacancies are expected to arise in construction

In health and social care, meanwhile, nearly 70,000 vacancies are expected to arise. The figure is more than 45,000 in education and more than 30,000 in public administration.

Many of the jobs on offer due to retirements are likely to require specific skills, qualifications and experience. Around 90% of these jobs are expected to be filled by people already in employment.

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Only modest economic growth is forecast for the West Midlands over the next 5 years

A continuing under–representation of higher value added sectors means that the pace of economic growth in the West Midlands over the next five years is forecast to be modest.

Gross Value Added (GVA)

The Observatory’s new report The West Midlands economy post recession: key issues and challenges (pdf, 844kb) forecasts GVA to grow by just 11% (£9 billion) between 2010–2015. This compares with growth of 15% (£11 billion) between 2000–2007.

While the pace of growth is forecast to be strongest in higher value added private sector activities (such as ICT & telecoms and high value added business & professional services), they account for only a limited share of GVA. Growth is expected to be much weaker in sectors that dominate the regional economy such as lower value added, traditional private sector activities and the public sector.

Geographically, GVA is forecast to grow most strongly (by some 13% between 2010–2015) in areas identified as those with potential to lead the region’s recovery such as Solihull, Warwick and Stratford-on-Avon.

The weakest growth (less than 9% over the period) is expected in areas identified as having long-term issues that may inhibit recovery such as Wolverhampton, Walsall, Stoke-on-Trent and Sandwell.

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Recovery from the recession remains fragile in the West Midlands

According to recent research by the Observatory, recovery from the recession has been fragile. After rising in the second half of 2009, recruitment activity faltered in the early months of 2010.

Geographically, the areas expected to experience the most fragile economic recovery in terms of growth in GVA and jobs are traditional industrial areas, such as the Black Country and Stoke-on-Trent. These areas have historically been dependent on industries such as engineering, manufacturing and construction.

Recovery is expected to be strongest in areas clustered in the south and east of the West Midlands, in Solihull and Warwickshire. These areas benefit from a strong presence of high value added knowledge-based industries,  good communication links and environmental quality.

The pace of economic growth in the West Midlands over the next five years (2010–2015) is forecast to be modest. GVA is forecast to grow by 11% (£9 billion) over the period. This compares with growth of 15% (£11 billion) between 2000–2007.

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Weaknesses in the West Midlands economy act as a drag on future prospects

There’s a need to drive sustainable economic growth in the West Midlands, which in turn can foster the investment and business success that will create job growth. This requires giving priority to growth sectors and the development of a world class skills base.

However, the Observatory’s new report, The West Midlands economy post recession: key issues and challenges (pdf, 844kb), highlights continuing under representation of higher value added sectors.

Lower value added private sector activities such as low value business services, wholesale and retail, hotels and catering, and cultural, recreational and sporting activities make a particularly significant contribution to the regional economy. These account for more than half of GVA and employment.

Share of employment in the West Midlands by broad sector in 2008

Share of employment in the West Midlands by broad sector in 2008

Source: Office for National Statistics Annual Business Enquiry
Share this chart | Data on Google Docs

Traditional private sector industries such as engineering and transport technologies, other manufacturing activities such as the interiors and lifestyle, and food and drink clusters, construction and building technologies also make a significant contribution. So do public sector activities such as public administration, education, and health and social care.

These sectors are an important source of jobs for people with fewer skills and can play a key role in reducing worklessness and economic and social deprivation.

But reducing the dependence of the West Midlands economy on these activities and attracting and developing more businesses in higher value added sectors such as higher value added business & professional services, environmental technologies, digital media and medical technologies is key to improving the West Midlands’ economic performance and generating more new highly skilled jobs.

However, to date, these sectors have generated only limited levels of GVA and employment.

As a result, the private sector in the West Midlands has grown relatively slowly in recent years. Between 1998–2008 employment increased by just 30,000 (growth of 2% which compares to an increase of 19% across the UK as a whole).

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West Midlands monthly economic update report for January 2010

The latest West Midlands monthly economic update (pdf, 414kb) is now available, updated to January 2010.

The report, published each month by the West Midlands Taskforce, summarises key trends and issues in the national and West Midlands economy.

This information is used by the Taskforce to inform partners’ responses to the downturn and to provide government ministers with updates on the key issues faced by the region’s businesses and communities.

The Observatory supports the Taskforce with data from across key sectors, as part of our work on monitoring the impact of the recession on the West Midlands.

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It was the best of times, it was the worst of times

Despite a positive performance in the last quarter of 2009, the Cultural Observatory’s latest recession snapshot (pdf, 311kb) suggests the West Midlands’ cultural sector is facing a period of ‘funding uncertainty’.

Evidence highlighted in the paper suggests that while many local cultural organisations remain optimistic about the short-term stability of core funding sources, perception of funding security is low compared to confidence levels pre-recession.

Spines of books on a shelf in a libraryIn the Cultural Observatory’s own economic survey with local cultural organisations, 72% of respondents stated that they were ‘less optimistic’ about the stability of core funding sources compared to 2007.

Against a backdrop of funding concerns, the research shows that the cultural sector continued to see increases in numbers of customers through the door in the last three months of 2009, building on the unusually high increase in footfall seen over the summer.

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What will be the key drivers for the West Midlands’ future? Notes from ‘Regional Drivers for the Future’ workshop at the Observatory’s 2009 conference

Chap-3_v1.0_image_ONThere was little disagreement from workshop participants with Gill Bentley‘s opening suggestion that ‘this recession is almost tantamount to war’ in terms of its impact on the region’s prosperity.

Dr Chris Upton‘s account, in chapter 1 of West Midlands: Fit for the Future? (PDF, 5.7mb), of the devastating impact that the 1790s war with France had on the region’s manufacturing industry served as a fitting backdrop for the workshop debate, which asked participants to address the question:

‘What will be the key drivers for the region’s future?’

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ONS article investigates economic productivity in urban versus rural areas

Office for National Statistics logoContrasts in the economic productivity of urban versus rural local authorities, and the factors contributing to the varying performance of the economies of English regions, are both the subject of an article in the latest edition of Economic & Labour Market Review.

The article in the ONS publication takes a detailed look at Gross Value Added per filled job (GVA per job) statistics for groups of local authorities in each English region, using DEFRA classifications (PDF, 52kb) which group local authorities according to their urban/rural composition characteristics.

In the West Midlands region and among the six local authority classifications, ‘Major Urban’ local authorities (for example, Birmingham) were found to be the most productive, with GVA per job averaging an indexed value of 90.4 (where England=100) for 2004 to 2006. However, this represented a noteworthy decline from the value of 95.8 recorded in 2001 to 2003.

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Developing a high growth knowledge economy in the West Midlands

Laboratory at Micropathology Ltd, Warwick Science ParkKnowledge intensive industries rely on innovation and knowledge to gain competitive advantage and, although the sector has grown rapidly in recent years, the West Midlands has struggled to attract these activities.

Through a state of the region dialogue on the West Midlands’ knowledge economy (pdf, 383kb), the Observatory has identified a range of actions to address this, developed and agreed by a range of policy makers, researchers and academics.

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How is the West Midlands cultural sector performing during the recession?

Ironbridge with views of Telford townEconomic research launched in March 2009 by the West Midlands Cultural Observatory has helped to shed light on how the region’s cultural and creative sector is performing during the current economic downturn — an area which has not been the subject of sustained research in the past.

The economic snapshot paper (Word, 306KB) includes the results of a small scale survey which explores how levels of visitors and revenue have been affected in cultural venues such as museums, arts centres and visitor attractions.

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New research on the impact of culture in the West Midlands

Culture and prosperity report coverNew research produced by the West Midlands Cultural Observatory has boosted understanding of the social and economic role that culture has played in the West Midlands over recent years.

Long term economic trends suggest that the sector is expanding, employing more people and increasing its GVA and turnover output year-on-year.

For example, the Culture & Prosperity (PDF, 1.2MB) paper describes how the region’s creative industries had a 36% increase in turnover between 2004 and 2007: a level which exceeded the national average increase in turnover for creative industries (+13%) and the average growth in turnover within the whole West Midlands economy (+19%) over the same period.

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