• The Australian Chamber–Westpac Survey of Industrial trends, Australia’s longest running business survey dating from 1966, provides a timely update on manufacturing and insights into economy-wide trends.
• The Westpac–AusChamber Actual Composite index fell sharply to 52.9 in September from 61.5 in June. The further loss in momentum continues the weakening trend seen since mid-2018.
• The softer result in the Composite was seen across all subcomponents. Employment, new orders, output, backlog and overtime have now all eased back to modest levels. In particular, new orders have fallen to the softest level since 2013 – a net 6% reporting higher new orders in September compared to a net 27% in June. The deterioration in conditions mirrors that of the broader Australian economy. Annual growth has slowed to 1.4%yr, the slowest pace since the time of the GFC – September 2009. Very weak private
demand is being partly offset by a continued lift in public spending.
• As with the economy overall, conditions in the manufacturing industry are mixed across different sectors. Most notably, the downturn in construction, in particular residential works, has weighed heavily on metals manufacturers. Against this, the Australian dollar is performing its role as an economic shock-absorber. Having depreciated 3% in trade-weighted terms since the time of the last survey, the cheaper AUD is supporting exporters and import-competing firms. Looking ahead, recent policy stimulus will help to provide support to conditions, but the outlook remains uncertain.
• Manufacturing firms’ sentiment regarding the general business situation soured in September, following the brief lift in June associated with the passing of policy uncertainty post the Federal election. In September, a net 2% of firms expect the general business situation to deteriorate over the next six months compared to a net 28% expecting an improvement in June. The Expected Composite also weakened in September but to a lesser extent, declining to 56.9 from 63.3 in June. That suggests that the abrupt drop in the Actual Composite in September may in part be related to temporary factors, such as lumpiness in the public infrastructure pipeline.
• Exports continue on a moderate uptrend and picked up a bit of pace in September. A net 8% of firms reported higher exports, which compares to a net 2% in June.
• Equipment investment intentions eased back in September. A net 12% of respondents plan to increase investment over the next six months, down from a net 21% in June.
• The survey’s Labour Market Composite, which broadly tracks economy-wide employment growth, is at 48.7. The index correctly led the uplift in employment in 2017 and identified the turning point to slower momentum in 2018. Currently, it suggests employment growth will ease over the second half of 2019.
I can’t see any quick turn in dwelling construction.
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.
