Not good news from the business community going into the Xmas/New Year stretch with the latest Westpac/ACCI business survey showing a sharp retraction in overall conditions in the fourth quarter, slashed from a positive 64.6 points in the September quarter to a negative 49 reading (50 being neutral).
Quick take here with my highlights added:
- The survey reported broadly flat new orders, a decline in employment and overtime, and a sharp deceleration in output.
- The survey finds that the burst of demand enjoyed by the manufacturing sector on the reopening of the economy from delta lockdowns and the omicron disruptions has come to an end. Earlier tailwinds to activity have faded, replaced by the headwinds of rapid interest rate rises by the RBA and high inflation.
- New orders all but stalled in the December quarter, only a net 2% reporting a rise. A net 10% of firms increased output, down from the series high of 43% in Q3, to be well below the decade average of 17%.
- In addition to ongoing material and labour shortages, surging energy costs have instigated a cost crisis – significantly reducing the competitiveness of the sector and threatening the viability of some businesses.
- In the December quarter, a net 76% of firms reported a rise in average unit costs – well above the net 59% in Q3 and the highest reading since the high inflation days of 1982.
- Both “labour” and “materials” continue to be cited as key constraints to output expansion at levels last seen during the oil shock of 1973/74. Some 43% of respondents cited labour as the single factor most limiting production, broadly unchanged from 44%. Material constraints intensified, with 19% citing this as the single factor most limiting production, up from 15%.
- Against this backdrop, profit expectations have swung from subdued, at a net plus 8%, to deeply negative, with 13% anticipating a deterioration over the upcoming twelve months. Business sentiment has similarly become deeply pessimistic, following an average reading of plus 18%, with a net 19% expecting general business conditions to worsen over the next six months.
Merry Christmas I guess? Get ready for more price inflation in the New Year and some hard times to follow…
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