The latest survey of industrial trends from the Australian Chamber of Commerce & Industry (ACCI) shows that the state of the manufacturing industry has slightly improved, but there are still disappointing aspects that need to be addressed.
The June quarter 2013 ACCI – Westpac Survey shows that New Orders and Output rebounded in the quarter, rising from -7% and -8% to 9% and 3% respectively. The composite index rose to 51.7 points in the June quarter, up from 46.5 points in the previous three months. An index above 50 indicates that the sector is expanding.
The modest improvement in manufacturing coincided with the weakening of the Australian dollar in recent months, down 7 cents against the US dollar. However, while remaining marginally positive, the General Business Expectations indicator for the next six months has softened and the employment outlook continues to deteriorate, according to the media release from ACCI.
“This Survey clearly underscores that conditions have become increasingly challenging for Australian manufacturers amid weak demand, rising production costs, the lack of pricing power and a still historically strong currency,” said Greg Evans, Chief Economist, Australian Chamber of Commerce and Industry.
“It is concerning that despite the official interest rate at its historical low level, there is little indication of a rise in non-mining investment and activity at a time when the mining investment boom is peaking.”
Contrary to expectation, the net outcome for Exports has also been negative in the June quarter. Manufacturers also continue to shed employees, with an outcome of -15% and a projection of -13%. It is expected that this trend will continue into the third quarter.
Capital expenditures are also weak overall. Capex projections on plant and equipment for the next 12 months have firmed slightly at 3%, but is at -15% for spending intentions on buildings and structures.
Input costs also continue to rise, and manufacturers still find it very difficult to pass on cost increases through higher selling prices.
“The Westpac-ACCI Labour Market Composite, which has historically given a reliable guide to economy–wide job prospects, remained negative and suggests that jobs will fail to keep pace with population growth. Firms are responding to fluctuations in new orders by managing overtime,” said Andrew Hanlan, Senior Economist at Westpac Banking Corporation.
“For a smooth transition from resources to non-resources led growth, it is essential that policymakers provide a policy environment that is conducive for business investment and employment,” said Evans.
“It is disappointing that the recent May Federal Budget did not provide any measures that will lift business sentiment, especially for small manufacturers.”