The apparent recession in the Manufacturing sector rolls on, with the release of the latest Westpac–ACCI Survey of Industrial Trends, which is the longest running business survey in Australia (dating back to 1966), revealing that economic conditions manufacturing deteriorated in the three months to September, with the Composite Index falling by 4.3 points to 47.3, indicating a moderate contraction in activity.
While the result was poor, at least there was a noteable improvement in expectations amongst respondents, presumably due to the reduction in political uncertainty ahead of the Federal election. The Expected Composite increased rose from 54.4 to 55.7, while expectations for “general business conditions over the next 6 months” jumped from +3 to +25.
The Australian dollar fell around US3¢ between the June and September surveys, providing positve support, although it appears to again be on the rise following last night’s decision by the Federal Reserve not to unwind (“taper”) its $US85 billion a month of bond purchases. In any event, global demand remains soft and the Australian dollar remains high from an historical perspective, limiting the upside for exports.
Importantly, the Westpac–ACCI Labour Market Composite, which is historically a reliable guide to economy–wide job prospects, fell over the September quarter, pointing to softer employment growth and rising unemployment in the period ahead. Manufacturers are reportedly continuing to use overtime to meet fluctuations in new orders, rather than employing new workers.
Further evidence of weaker labour market conditions are apparent from the measure on the availability of labour. Only 2% (weakest reading since 2009) of all respondents reported labour as “harder to get”, compared with 15% reporting easier conditions. The net balance was the weakest reading since late 2009.
Capacity utilisation declined again and remains well below its long-run average. This continues to impact investment, which seems more focused on improving efficiency rather than expanding capacity.
Wage pressures continue to moderate, in line with softer labour market conditions. A net 10% of respondents expect their next wage deal will result in wages growth being below the last.
Profitability also remains under pressure. Input costs continue to rise, whereas soft end-demand and the still-high level of the Australian dollar are impeding firms’ pricing power.
