Over the last three months, and against expectations, Welsh manufacturers have bucked the UK trend and increased their work force for the second consecutive quarter, according to the CBI Wales April 2010 Welsh Industrial Trends quarterly survey. Many expect this strong employment growth to continue in Wales over the next three months.

But while manufacturers have been resilient on the one hand, the wider performance picture is not as bright. Having seen growth in the previous quarter for the first time since April 2008, the volume of total orders in the three months to April 2010 fell. This was underpinned by a fall in domestic orders and deliveries.

Export orders grew for the second consecutive quarter, a trend that is expected to continue in coming months. However, with downward export price pressure and upward average unit cost set to continue, manufacturers will find profits squeezed as work becomes unprofitable and investment in labour and products more difficult.

Business confidence and investment intentions also remained upbeat with Welsh manufacturers particularly optimistic about export prospects and investment intentions for buildings, plant and machinery. Manufacturers were particularly keen to invest in increasing operating efficiency as well as in expanding overall production capacity.

Chair of the CBI Wales Economic Trends Panel, Rudi Plaut said: “Actions speak louder than words. So it is very encouraging to see that, against expectations and unlike their English colleagues, Welsh manufacturers have increased their labour force for a second quarter running, reversing a long term trend. "This is reinforced by their intentions to take on even more in the coming months.

"Behind this the picture is not so bright. Domestic orders and deliveries were down, though a little better is expected in the current quarter. Domestic prices held steady over the past quarter but are expected to be under pressure again in the coming months. Export volumes have been good and are expected to get better but against strong price pressures, whilst costs have started to increase again. "This puts manufacturers back into a profit squeeze where work becomes increasingly unprofitable, making investment in development of staff and products difficult. These are the areas where the future health of the manufacturing sector are forged and the reason for their increase during these slightly better times. On the other hand, if sterling falls, then this will further help exports but will also make the cost of materials much more expensive. So the future remains extremely hard to predict.”