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MANUFACTURING COGS BEGIN TO TURN AGAIN

23-09-2014
by 
in 

Australian manufacturers are expecting a rise in new orders and output over the next six months, according to a new business survey.

The September 2014 ACCI-Westpac Survey of Industrial Trends reveals a marked rebound in General Business Expectations for the remainder of the year and a continued firming of demand and production indicators.

from 4 percent to 8 percent and 1 percent to 11 percent, respectively.

Expected indexes for both indicators have risen sharply from 3 percent to 30 percent and 8 percent to 34 percent, respectively. 

The survey showed Capacity Utilisation has firmed again with 78 percent of the manufacturers surveyed working at or above their normal capacity levels. However, about one-fifth of the respondents still reported some idle capacity.

The ACCI-Westpac Survey of Industrial Trends is the longest running business survey in Australia, dating back to 1966.

Australian Chamber of Commerce and Industry CEO Kate Carnell, said the composite index has been in positive territory for a year indicating trading conditions in the manufacturing sector have turned the corner.

“The reading on the expected composite index provides some justification for being optimistic about the future,” she said.

While general business expectations remain strong, other indicators have remained mixed.

The net actual Employment and Overtime worked outcomes softened but particularly for overtime worked, improvement is expected in the next quarter.

The net Export deliveries indicator is flat and unchanged. The net investment intentions indicators have very moderately softened. The net costs indicator has remained unchanged but, on balance, continuing to rise at the same net rate as in the June quarter and only a modest abatement predicted for the next three months. The expected wage costs indicator remains soft while net profitability expectations have firmed.

Although a clear majority of the firms surveyed reported no change, the net projections for capital expenditure on plant and equipment in the next 12 months softened (-1% and -9%, respectively). While the overwhelming majority (92%) of respondents reported no change, the net outcome for Exports was flat and marginally softer than expected (0%). A similar outcome is predicted for the next quarter.

The net Employment indicator (-15%) softened more than expected but some firming (to -4%) is expected in the December quarter 2014. While half the firms experienced no change, the net Overtime Worked indicator was also softer (0%). However, a marked firming (to 13%) is predicted for the next quarter. Cost pressures continued to rise at a similar net rate as three months ago but a modest abatement in the pace of cost increases (13%, down from 17%) is again predicted for the December quarter. The net Average Selling Prices indicator softened marginally (3%, down from 5%). With manufacturers still finding it difficult to pass on cost increases through higher prices the net expectation for the December quarter is down from 3% to 0%. The Profit expectations index revealed that the outlook for the next 12 months has improved modestly (to 8% from -4%) in line with expectations of some further easing of wage cost pressures.

Ms Carnell said the improvement in trading conditions, while welcome, is only tentative at this stage.

“Manufacturers need to see a sustained improvement in new orders and profit expectations before expansion of capacity gets underway in earnest. As the survey results show, new orders rather than capacity is still the dominant factor limiting production.

"The recent fall in the Australian dollar gives further cause for optimism as manufacturers have been doing it tough for quite a while."

Mr Bill Evans, Chief Economist, Westpac Banking Corporation, said the manufacturing sector is benefitting from a strengthening of consumer spending and a strong upswing in housing construction, as well as an upturn in non-residential building work.

"In the September quarter, a net 8% of firms reported a rise in new orders and a net 11% expanded output, but overtime was flat and employment levels declined, suggesting a lift in productivity.

"Expectations are positive following a dip in the June quarter,” he said. 

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