The ACCI-Westpac Survey of Industrial Trends, the longest running business survey in Australia, dating from 1966, provides a timely update on the manufacturing sector and insights into economy-wide trends.
The Westpac-ACCI Actual Composite index rose in the June quarter to 58.4, up 2.2pts on March.
This result builds on the positive tone of the previous two quarters, suggesting a trend improvement in conditions in the manufacturing sector.
The strengthening of the Composite index is centred on new orders and output, as well as overtime.
Employment conditions, while not strong, improved a little in June.
Manufacturing is benefitting from a strong upswing in home building activity and some improvement in service sector investment. Another plus is the small business package in the 2015 Federal Budget.
However, the current cycle remains constrained. Consumer spending is below trend, mining investment is turning down sharply and global fragilities persist.
Exports are rising, albeit gradually, as the sector benefits from the sharp fall in the currency against the US dollar. A net 2% of firms reported a lift in exports and a net 5% expect an increase in the coming quarter.
Expectations are positive, centred on new orders and output. The Expected Composite index was at 57.0, up 1.0pt on March. In addition, a net 19%, up from 8% at the start of the year, expect the general business environment to strengthen over the next six months.
Businesses are looking to 2015 to be a better year for profits, driven by increased turnover, with a net 32% expecting profits to increase.
There are tentative signs that investment by the sector is nearing a turning point, consistent with a trend reduction in the sector’s spare capacity. A net 11% of firms expect to increase spending on equipment in the next 12 months. The improvement, to date, is centred on fewer firms looking to reduce spending.
On jobs, the survey’s Labour Market composite has trended higher over the past year and a half, to 55.3 in June. The Index correctly foreshadowed the strengthening in economy wide jobs growth evident over the past year and points to solid gains in coming months.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
