industrial survey · not only christmas but also black friday, the latter taking place in...

ISSN 1676-0212 • Year 22 • Number 12 • December 2019

INDICATORSECONOMIC

INDUSTRIAL SURVEY

The Industrial Survey data for industrial performance in December reflect the expected behavior for the period, with a decline in industrial activity. This is explained by the end of orders for the year-end holiday season (which now includes not only Christmas but also Black Friday, the latter taking place in November). Except for this fact, the data are positive. The fall in production and employment were milder than in previous years and capacity utilization closed 2019 above the figure observed in the last four years.

Industry ends 2019 in a better position than in previous years

Data for the fourth quarter of 2019 are also positive. They show a continued improvement in industrial financial conditions and lessening concerns over lack of demand, a problem that has significantly affected industrial production in the recent past.

Added to this picture is the fact that entrepreneurs are very optimistic about the coming months, as reflected in the expectations data for January 2020. Optimism about demand over the next six months is at significant levels, which has contributed to an increasingly positive outlook for new hirings, purchases of raw materials and investments.

Average capacity utilization rate Percentage (%)

Average 2011-13 2014 Average 2015-17 2018 2019

60

64

68

72

76

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2

ISSN 1676-0212 • Year 22 • Number 12 • December 2019Industrial Survey

PERFORMANCE OF INDUSTRY IN DECEMBER 2019

As usually expected, owing to the end of the production period to meet year-end orders, production dropped considerably between November and December. The production index stood at 43.8 points. It is worth noting, however, that the decline observed at the end of 2019 was the least significant since 2011.

Likewise, the index measuring number of employees tends to decrease between November and December. Yet, the decline in 2019 was milder than in previous years, with the indicator amounting to 48.7 points.

The capacity utilization rate close 2019 at 67%, representing a 3-percentage point decline as compared to November. This adjustment occurs naturally at the end of each year. However, it should be noted that the index for December 2019 is up by 2 percentage points from the same month a year ago and hit its highest point for the month since 2014, when it reached 68%. Considering only large companies, the indicator amounted to 71%, the highest level for the month since 2013. For this group of companies, it is the first time since then that the indicator closes the year above 70%.

The index measuring actual-usual capacity utilization closed the year at 44.7 points. While it represents a 2-point decline from November, the index is at its highest point for the month since the series started in 2010.

Milder decline in production and employment at the end of 2019

Idle capacity closes 2019 down from previous years

Production evolution in December (2010-2019)Diffusion index (0-100 points)*

Actual-usual capacity utilizationDiffusion index (0-100 points)*

*Figures above 50 points indicate a month-over-month increase in production. Figures below 50 points indicate a month-over-month decline in production. The further away from 50 points, the greater and more widespread the change.

* Figures above 50 points indicate that capacity utilization is above usual levels for the month. Figures below 50 points indicate that capacity utilization is below usual levels for the month. The further away from 50 points, the greater and more widespread the distance from usual levels for the month.

Production Dividing line

Actual-usual capacity utilization Dividing line

IncreaseDecrease

45.342.6

41.2 40.238.3

35.5

40.742.4

40.7

43.8

30

35

40

45

50

55

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

38.6

32.6

37.4

41.4 41.7

44.7

30

35

40

45

50

Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Dec/19

AboveusualBelowusual

3


As expected for the period owing to the end of production to meet year-end orders, inventory levels edged down between November and December. The inventory index stood close to the figure observed in previous years at 46.7 points.The index measuring actual-usual

Low inventory levels in December

inventory levels dropped by 1.0 point to 49.0 points. The indicator is also at a similar level than in previous years.

Considering only large companies, the index stood at 50.9 points. While above the 50-point mark, the index hit one of its lowest levels for December in the historical series, higher only than the figure registered in 2016 and in 2010 (first year of the series).

Inventory levels and actual-planned inventory levelsDiffusion index (0-100 points)*

*Figures above 50 points indicate an increase in inventory levels or that actual inventory is above planned levels. Figures below 50 points indicate a decline in inventory levels or that actual inventory is below planned levels. The further away from 50 points, the greater the change or the distance from planned levels.

Inventory levels Actual-planned Dividing line

46.6

48.9

50.2 50.5 50.7 50.8 51.1 51.5 50.1 50.4 50.1

49.0

46.7

48.950.2

51.1 51.2 51.3 51.652.2

52.8

51.7 51.4 51.1

50.0 49.0

45

47

49

51

53

55

Dec/18 Jan/19 Feb/19 Mar/19 Apr/19 May/19 Jun/19 Jul/19 Aug/19 Sep/19 Oct/19 Nov/19 Dec/19

Decrease/belowplannedlevel

Increase/aboveplannedlevel

4


Business financial conditions improved again in the fourth quarter of 2019. The indices measuring satisfaction with profits and satisfaction with financial conditions increased for the second consecutive quarter.

The index of satisfaction with profits grew by 3.5 points in the quarter (it had grown 2.2 points in the previous quarter) to 45.8 points. Albeit below 50 points, which shows dissatisfaction with profits, the indicator hit its highest point since the first quarter of 2011 and is 4.1 points above its historical average.

The index measuring satisfaction with financial conditions in turn grew by 2.8 points in the fourth quarter of 2019 (it had risen by 1.5 points in the previous quarter) and reached the 50-point dividing line. This is to say that entrepreneurs are satisfied with their financial situation. The index had last reached 50 points in the fourth quarter of 2012.

Access to credit is becoming less and less difficult. The index measuring ease of access to credit edged up by 2.8 points in the fourth quarter of 2019 to 43.2 points. This marked the sixth consecutive increase in the index, which edged up by 6.3 points in the period. Albeit below 50 points, which shows difficulty to access credit, the index reached a record-high since the fourth quarter 2012, when it amounted to 43.7 points, and is up by 3.5 points from its historical average.

The significant improvement in access to credit among large companies deseves special mention. After accumulating growth of 6.0 points as compared to the last quarter of 2018, the index amounted to 47 points. The index is at its highest point since the fourth quarter of 2010.

Business financial situation rebounds

FINANCIAL CONDITIONS OF INDUSTRY IN THE FOURTH QUARTER OF 2019

Satisfaction with profits and financial situationDiffusion index (0-100 points)*

* Figures above 50 points indicate satisfaction with profits and with financial conditions. Figures below 50 points indicate dissatisfaction with profits and with financial conditions. The further away from 50 points, the greater and more widespread the satisfaction or dissatisfaction.

Financial situation Profits Dividing line

Ease of access to credit Diffusion index (0-100 points)*

* Figures above 50 points indicate easy access to credit. Figures below 50 points indicate difficult access to credit. The further away from 50 points, the greater and more widespread the difficulty or ease of accessing credit.

Ease of access to credit Dividing line

42.347.3 46.1

50.0

37.9

42.8 42.0

45.8

30.0

35.0

40.0

45.0

50.0

55.0

Q4 2016

Q2 2017

Q4 2017

Q22018

Q42018

Q22019

Q42019

DissatisfactionSatisfaction

30.8

37.338.3

43.2

25.0

30.0

35.0

40.0

45.0

50.0

Q42016

Q22017

Q42017

Q22018

Q42018

Q22019

Q42019

Easy

5


A high tax burden continued to top the list of major problems facing industry in the fourth quarter of 2019, with the number of companies marking this issue falling by 1.1 percentage points between the third and fourth quarters of 2019 to 43.6%.

Insufficient domestic demand continued to rank second, with 29.6% of responses. While this issue maintained its position in the ranking, the number of firms indicating it as a major problem fell by 5 percentage points in the quarter, after a 6.5-point decline in the previous quarter. The percentage of responses for this problem is below 30% for the first time since the new series started in the first quarter of 2015. In the second quarter of 2016, 43.2% of companies had indicated it as a major problem. A lower percentage of companies also mentioned the issue of insufficient foreign demand (down from 13% to 9.9%).

Companies see increase in demand

PROBLEMS FACED BY INDUSTRY IN THE FOURTH QUARTER OF 2019

Unfair competition and high cost (or lack) of raw materials are tied in third place in the ranking of major problems, with each accounting for 18.7% of responses. Completing the list of the five main prevalent problems is the issue of lack of working capital, which was pointed out by 17.3% of companies.

Of the other problems listed, special mention should be made of the fourth consecutive decline in the percentage of companies indicating the issue of high interest rates, which pushed down the index to 13%—its lowest level since the first quarter of 2015. Also worthy of note is the increase in responses for the problem of legal uncertainty, which edged up from 6.3% to 8.3% and is at its highest point in the series. Considering large companies only, the percentage also stood at an unprecedented 10%.

It is worth highlighting that problems commonly related to a stronger activity expansion—such as high cost (or lack) of raw materials, lack of skilled labor, and power shortages—saw an increase in the percentage of responses in the fourth quarter.

Q4 2019 Q3 2019

*In the survey, entrepreneurs are asked to indicate up to three items representing the main problems faced by their companies, so the sum of the percentages exceeds 100%.

Main problems faced by industry in the fourth quarter of 2019 Percentage (%)*

43.6

29.6

18.7

18.7

17.3

17.2

16.7

15.8

13.6

44.7

34.6

17.3

17.6

18.2

16.3

16.2

14.5

14.6

High tax burden

Insu�cient domestic demand

Unfair competition

Lack or high costs of raw materials

Lack of working capital

Excessive red tape

Exchange rate

Lack or high cost of energy

Client delinquency

13.0

10.6

9.9

8.4

8.3

8.1

7.8

3.1

4.0

15.0

11.5

13.0

7.5

6.3

8.3

6.3

3.6

2.9

High interest rates

Di�culties with transportation logistics

Insu�cient foreign demand

Competition with imported goods

Legal uncertainty

Lack of long-term funding

Lack or high cost of skilled labor

Other

None

6


All expectation indices edged up—most of which significantly—between December 2019 and January 2020. Since October last year, the indicators have shown growing optimism about domestic and external demand and prospects for increased purchases of inputs and new hirings.

Special mention should be made of the index of expected demand, which grew by 3.1 points to 61.0 points (highest level since July 2011), and of the index measuring expected number of employees, which rose by 2.1 points to 54.0 points (highest point since April 2011).

The index of expected purchases of raw materials increased by 2.9 points to 58.3 points, while the index measuring expected export volumes rose by 1.0 point to 55.5 points. While it shows optimism, this index is the only one to experience a decline as compared to January 2019 (-0.6 points). The other indicators increased by slightly less than 1.0 point.

Entrepreneurs start the year on an optimistic note

INDUSTRY’S EXPECTATIONS IN JANUARY 2020

Expectation indicesDiffusion index (0-100 points)*

Investment intentions among entrepreneurs remain on the rise. The investment intentions index increased to 59.2 points after growing by 1.1 points in January 2020 month-over-month. This marked the fourth consecutive increase in the index, which grew by 5.7 points in the period. As a result of this increase, the index hit one of its highest points in the series—the highest since February 2014, when it amounted to 59.5 points. This series started in November 2013.

Increasingly higher investment intentions

* The higher the index, the more industry is likely to invest.

Investment intentions Diffusion indices (0-100 points)*

* Figures above 50 points indicate an expected growth. Figures below 50 points indicate an expected decline. The further away from 50 points, the greater and more widespread the expected change.

Demand Number of employees Dividing line

Purchases of inputs and raw materials Exports Dividing line

Investment intentions Dividing line

61.0

54.0

45

50

55

60

65

Jan/19 Mar/19 May/19 Jul/19 Sep/19 Nov/19 Jan/20

DecreaseIncrease

55.5

58.3

45

50

55

60

65

Jan/19 Mar/19 May/19 Jul/19 Sep/19 Nov/19 Jan/20

DecreaseIncrease

61.5

52.1

41.6 45.3

53.056.1

59.2

35

40

45

50

55

60

65

Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Jan/19 Jan/20

7


RESULTS

Main problems

TOTAL SMALL MEDIUM LARGE

Q3 2019 Q4 2019 Q3 2019 Q4 2019 Q3 2019 Q4 2019 Q3 2019 Q4 2019

ITEMS % % Ranking % % Ranking % % Ranking % % Ranking

High tax burden 44.7 43.6 1 42.2 45.6 1 48.3 44.9 1 44.0 42.0 1

Insufficient domestic demand 34.6 29.6 2 30.6 27.4 3 34.3 28.7 2 36.8 31.2 2

Unfair competition 17.3 18.7 3 27.1 27.7 2 17.7 19.5 5 12.3 13.9 7

Lack or high costs of raw materials 17.6 18.7 4 20.0 19.9 5 19.0 19.8 3 15.7 17.6 4

Lack of working capital 18.2 17.3 5 22.4 20.3 4 20.8 19.7 4 14.7 14.5 6

Excessive red tape 16.3 17.2 6 14.9 16.1 8 16.4 17.9 6 17.0 17.3 5

Exchange rate 16.2 16.7 7 6.1 8.7 11 15.4 14.6 10 21.7 21.8 3

Lack or high cost of energy 14.5 15.8 8 20.3 19.5 6 17.3 16.2 7 10.2 13.7 8

Client delinquency 14.6 13.6 9 19.3 19.0 7 14.8 15.2 9 12.1 10.0 12

High interest rates 15.0 13.0 10 18.9 14.2 9 15.1 16.2 7 13.0 10.8 11

Difficulties with transportation logistics 11.5 10.6 11 7.5 5.1 15 10.6 10.4 11 14.0 13.5 9

Insufficient foreign demand 13.0 9.9 12 7.8 5.6 14 9.6 7.3 15 17.4 13.3 10

Competition with imported goods 7.5 8.4 13 6.8 6.9 13 8.9 9.0 13 7.2 8.8 14

Legal uncertainty 6.3 8.3 14 3.9 5.1 15 6.7 7.9 14 7.2 10.0 12

Lack of long-term funding 8.3 8.1 15 9.1 7.9 12 10.2 10.1 12 7.0 7.1 15

Lack or high cost of skilled labor 6.3 7.8 15 11.2 12.2 10 7.0 7.0 16 3.6 6.1 16

Other 3.6 3.1 - 3.4 3.1 - 3.6 4.4 - 3.6 2.5 -

None 2.9 4.0 - 3.2 3.6 - 2.5 3.1 - 3.0 4.7 -

Note: In the survey, entrepreneurs are asked to indicate up to three items representing the main problems faced by their companies, so the sum of percentages exceeds 100%.

PRODUCTION EVOLUTION

NUMBER OF EMPLOYEES EVOLUTION

CAPACITYUTILIZATION (%)

ACTUAL-USUAL CAPACITY

UTILIZATION

INVENTORIESLEVELS

EVOLUTION

ACTUAL-PLANNED INVENTORIES

Dec/18 Nov/19 Dec/19 Dec/18 Nov/19 Dec/19 Dec/18 Nov/19 Dec/19 Dec/18 Nov/19 Dec/19 Dec/18 Nov/19 Dec/19 Dec/18 Nov/19 Dec/19

Total 40.7 50.9 43.8 47.2 50.0 48.7 65 70 67 41.7 46.7 44.7 46.6 49.0 46.7 48.9 50.0 49.0

BY INDUSTRIAL ACTIVITY

Mining andquarrying 41.1 46.5 47.3 47.9 50.5 51.7 67 72 70 41.0 48.0 47.0 43.5 47.8 44.5 48.6 50.5 51.1

Manufacturing 40.8 51.2 43.8 47.2 50.0 48.6 65 70 67 41.8 46.7 44.7 46.7 49.0 46.9 48.9 50.0 49.0

BY COMPANY SIZE

Small1 43.5 50.6 45.9 47.3 49.4 48.3 59 64 62 40.9 45.7 44.3 45.5 48.7 46.8 44.7 47.6 46.3

Medium2 42.1 51.0 44.1 47.5 50.2 48.9 64 68 65 41.1 45.2 42.9 46.3 48.8 47.3 48.2 48.6 48.1

Large3 38.5 51.0 42.7 47.0 50.2 48.7 69 75 71 42.4 48.0 45.9 47.3 49.2 46.4 51.4 51.9 50.9

The indicators vary in the 0-100 interval. Figures above 50 points indicate an increase in inventory levels, that actual inventory is above planned levels or that capacity utilization is above usual levels for the month. Figures below 50 points indicate a decline in inventory levels, that actual inventory is below planned levels or capacity utilization is below usual levels for the month.1 - Company with 10 to 49 employees. 2 - Company with 50-249 employees. 3 - Company with 250-plus employees.

Performance of industry

8


Financial conditions in the quarter

PROFITS AVERAGE PRICE OF RAW MATERIALS FINANCIAL SITUATION ACCESS TO CREDIT

Q4 2018 Q3 2019 Q4 2019 Q4 2018 Q3 2019 Q4 2019 Q4 2018 Q3 2019 Q4 2019 Q4 2018 Q3 2019 Q4 2019

Total 42.0 42.3 45.8 58.9 57.2 58.6 46.1 47.2 50.0 38.3 40.4 43.2


Mining andquarrying 46.2 44.8 48.3 57.3 55.1 61.3 47.9 48.1 50.7 42.1 46.1 46.8

Manufacturing 41.9 42.2 45.8 59.1 57.2 58.5 46.1 47.1 50.0 38.2 40.2 43.0

BY COMPANY SIZE

Small1 38.9 38.8 42.0 59.9 59.2 60.5 41.9 41.5 43.9 34.9 36.0 38.5

Medium2 40.4 39.3 42.7 59.2 58.1 59.9 44.7 45.6 46.4 36.5 39.3 40.3

Large3 44.4 45.7 49.4 58.3 55.7 56.9 49.0 50.9 55.0 41.0 43.2 47.0

The indicators range in the 0-100 interval. Figures above 50 points indicate satisfaction with profits and with financial conditions, easy access to credit or an increase in the average price of raw materials. Figures below 50 points indicate dissatisfaction with profits and with financial conditions, difficult access to credit or a decrease in the average price of raw materials.1 - Company with 10 to 49 employees. 2 - Company with 50-249 employees. 3 - Company with 250-plus employees.

The indicators vary in the 0-100 interval. Figures above 50 points indicate an expected growth. Figures below 50 points indicate an expected decline.* The indicator varies in the 0-100 interval. The higher the index, the more industry is likely to invest.1 - Company with 10 to 49 employees. 2 - Company with 50-249 employees. 3 - Company with 250-plus employees.

DEMAND EXPORTS VOLUMES PURCHASES OF RAW MATERIALS NUMBER OF EMPLOYEES INVESTMENT

INTENTIONS*

Jan/19 Dec/19 Jan/20 Jan/19 Dec/19 Jan/20 Jan/19 Dec/19 Jan/20 Jan/19 Dec/19 Jan/20 Jan/19 Dec/19 Jan/20

Total 60.3 57.9 61.0 56.1 54.5 55.5 57.5 55.4 58.3 53.1 51.9 54.0 56.1 58.1 59.2


Mining andquarrying 59.1 57.2 59.4 56.0 58.1 58.1 56.1 51.1 55.5 54.6 52.1 54.3 60.1 58.4 60.2

Manufacturing 60.3 58.1 61.0 56.0 54.4 55.3 57.5 55.6 58.4 53.1 51.9 54.0 55.9 58.1 59.1

BY COMPANY SIZE

Small1 59.4 56.2 59.7 57.4 52.4 53.2 56.0 54.2 57.0 52.4 51.9 53.3 45.9 46.3 47.9

Medium2 60.8 57.4 61.0 55.8 55.2 57.1 58.1 55.4 58.7 53.8 51.7 54.3 53.6 56.4 56.3

Large3 60.4 59.1 61.6 55.7 55.1 55.9 57.9 56.0 58.7 53.1 52.0 54.1 62.4 64.9 66.3

Industrial expectations

Technical specificationsSample profile 1,965 enterprises, including 744 small, 711 medium and 510 large companies.

Data collection periodJanuary 6-17, 2020.

Document closed by January 27, 2020.

Learn moreFor more information on the survey, includinghistorical series and methodology, kindly visit: www.cni.com.br/e_sondindustrial

INDUSTRIAL SURVEY | English version of “Sondagem Industrial Dezembro 2019” | Monthly Publication of the National Confederation of Industry - CNI | www.cni.com.br | Industrial Development Board - DDI | Economic Policy Unit - PEC | Executive manager: Flávio Castelo Branco | Research and Competitiveness Unit - GPC | Executive manager: Renato da Fonseca | Statistics Unit | Manager: Edson Velloso | Analysis: Marcelo Souza Azevedo | Team: Aretha Silicia Lopez Soares, Roxana Rossy Campos and João Pedro Fontoura da Silva (intern) | Editing Unit | Coordinator: Carla Gadelha | Graphic design: Simone Marcia Broch Subscriptions: Customer Service - Phone: +55 (61) 3317-9992 – email: [email protected] publication may be copied, provided that the source is mentioned.

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