Slight uptick for manufacturing sector: ACCI

The Westpac-ACCI Survey of Industrial Trends reported an ongoing recovery in new orders, a consolidation in output and a bounce in overtime, but a decline in employment in the sector.

The composite rose from 54.6 in June to 56.0 to September, above the breakeven threshold of 50.

The update found that manufacturers are finding some pockets of demand amid a difficult broader economy and lingering supply-side challenges within the sector.

Westpac Economist Ryan Wells explained: “Growth in new orders was firmer than expected, with a net 20 per cent of firms reporting a rise in September, following a net 21 per cent in June.

“Output growth was little changed over the same period however, with a net 14 per cent of firms reporting an increase.

“Firms responded to the resilience in new orders via an increase in overtime. The latest survey found a net 11 per cent of firms increased overtime in September, and a net 12 per cent of firms are also looking to increase the size of their workforce over the next three months.

“The Expected Composite was virtually unchanged however, ticking down slightly from 53.0 in June to 52.9 in September, indicating firms expect demand conditions to improve at a modest pace. Partially offsetting this, supply-side issues remain a key concern of manufacturers.”

The survey finds that cost pressures facing manufacturers remain volatile.

In September, a net 51 per cent of firms reported a rise in average unit costs, well above the average net 19 per cent that reported an increase over the 10 years before the pandemic.

“Manufacturers have little scope to pass on rising costs to consumers. The net 26 per cent of manufacturers reporting a rise in prices remains well below the net proportion of those reporting an increase in costs, implying some degree of ongoing margin squeeze in the sector.

“Additionally, a net 13.1 per cent of respondents indicated that labour was more difficult to find in September.”

Having weathered persistent headwinds, manufacturers are developing an appetite for capacity expansion.

“The latest survey found that investment intentions forged ahead to a historic high, dating back to 1966, with a net 36 per cent and 22 per cent of respondents intending to increase investment spending on equipment and buildings respectively, over the next 12 months.”

ACCI Chief Executive Officer Andrew McKellar said the survey highlights once again the challenges and costs of doing business.

“While manufacturers may be experiencing pockets of opportunity, the growth in new orders is modest. On just about every category which makes up the index, results are still well down on pre-pandemic levels.”

Mr McKellar said more needs to be done to bring down inflation to reduce the pressure on business. and recent changes to workplace laws and the additional regulation those changes bring are impacting productivity.

“Fiscal policy at both the state and federal level must work in tandem with monetary policy to ensure inflation is brought down in a reasonable timeframe.

“There needs to be a greater focus on lifting productivity. This should include re-examining the recent changes to industrial relations that have made workplaces less flexible and taken us back to the 1980s.

“There also needs to be a discussion around reforming the tax system to make it fitter for purpose and reducing red tape which is strangling business.”

Read the full report on the ACCI website.