Australia’s manufacturers are confident business conditions will improve this year, according to a new industry survey.
The ACCI-Westpac Survey of Industrial Trends has recorded the third consecutive quarterly improvement in conditions.
The June-quarter survey, released by the Australian Chamber of Commerce and Industry (ACCI) last week, asks questions on actual and expected conditions for Australian manufacturers across 12 sectors and all states.
The rise in the Actual Composite Index, up 2.2 points on the previous quarter to 58.4 points, was driven by new orders, output and overtime.
Employment conditions improved a little in June but remain challenging.
Manufacturing is benefitting from a strong upswing in home building activity and improvement in service sector investment.
The Jobs and Small Business package in May’s Federal Budget is also a positive factor.
But the cycle remains constrained, with consumer spending below trend, mining investment turning down sharply and global fragilities persisting.
Exports are rising gradually as the sector benefits from the sharp fall in the currency against the US dollar.
A net 2 per cent of firms reported a lift in exports and a net 5 per cent expect an increase in the coming quarter.
The Expected Composite Index was at 57.0 points, up 1.0 point on the March quarter, driven by new orders and output.
A net 19 per cent, up from 8 per cent at the start of the year, expect the general business environment to strengthen over the next six months.
A net 32 per cent expect profits to increase, driven by increased turnover.
There are tentative signs investment by the sector is nearing a turning point, consistent with a trend reduction in spare capacity.
A net 11 per cent of firms expect to increase spending on equipment in the next 12 months.
The improvement so far is centred on fewer firms looking to reduce spending.
On jobs, the Labour Market Composite Index has trended higher over the past six quarters, to 55.3 points in June.
The Index points to solid gains in coming months.
There were 301 respondents to the survey from across the manufacturing sector.
The survey was conducted from May 1 to June 5.
Scores above 50 indicate that positive responses outnumber negative ones.
ACCI CEO Kate Carnell said: “This latest survey shows that things are looking positive for Australia’s industrial production.
“The combination of low interest rates, an easing local currency, support in the Federal Budget and rising home building activity is creating a virtuous groundswell.
We finally have some reasons for our manufacturers to smile.
“It is important that we consolidate the gains that have been made. We need certainty surrounding policy settings, which can best be achieved by the Senate passing the key measures from the Federal Budget.
"We also need a steady pipeline of high-quality infrastructure projects to overcome our growing infrastructure deficit and unleash productivity improvements.
"And finalisation of the Trans-Pacific Partnership will open up new export opportunities for Australian businesses.”
Mr Andrew Hanlan, Senior Economist at Westpac, said: “Manufacturing is benefitting from a strong upswing in home building activity and some improvement in service sector investment. Another plus is the small business package in the Federal Budget.
“Expectations are positive, centred on new orders and output. The Expected Composite index was at 57.0 points, up 1.0 on March. In addition, a net 19 per cent, up from 8 per cent at the start of the year, expect the general business environment to strengthen over the next six months.
"Notably, the macro settings are more accommodative and dwelling approvals have hit fresh record highs. The RBA cut rates twice in 2015 after stability in 2014, the currency is lower and the Federal Budget included a small business package.
“Despite the improvement evident late in 2014 and early in 2015, the current cycle remains constrained by a number of headwinds. Consumer spending is below trend, mining investment is turning down sharply and global fragilities persist.”
The ACCI-Westpac Survey of Industrial Trends is available at: www.acci.asn.au