The Westpac-ACCI manufacturing survey is out today:
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 was steady in the June quarter, at 51.0 following 50.9 in March.
This is the third consecutive reading above 50, the first such run of expansionary readings since 2011. The manufacturing sector is benefitting from a strengthening of consumer spending, an upturn in housing construction and a lift in exports. Output increased a fraction in the quarter, supported by an increase in new orders and a rise in exports.
Nevertheless, while conditions have improved on a year ago, the strength of this upturn has proven to be relatively modest over the first half of 2014. The overall tone of the June quarter survey is underwhelming. This highlights that while record low interest rates are a significant tailwind for growth, a number of headwinds persist.
Expectations have been scaled back, with the Expected Composite Index edging below 50, to 49.6, for the first time since September 2011. While expectations for new orders are positive, they have been pared back, with a net 3% of respondents anticipating a rise in orders in the coming three months, down from a net 26% in the March survey.
Profits are expected to weaken over the year ahead, with a net 4% anticipating a decline, little changed from a net –5% in the March survey. Investment intentions are tentative, with a net 2% expecting to lift plant and equipment spending over the coming year.
The survey provides some useful insights into the tone of the economy wide labour market. The Labour Market Composite index, while weakening in the June quarter, remains stronger than a year ago and points to a further improvement in economy wide jobs growth, albeit a modest one. In addition, the ‘labour market tightness’ question suggests that the nation’s unemployment rate may have peaked.
The ACCI-Westpac survey also provides a guide to the outlook for wages growth in the manufacturing sector. The most recent two surveys have been striking, pointing to a deceleration in wages growth on par with the 2009 downturn. This adds to the evidence that incomes in Australia are currently under pressure. Weakness in household incomes is constraining the upturn in household demand, with flow-on effects for the manufacturing sector.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
