September survey sees softening conditions for manufacturing

Mixed conditions for manufacturing in the September quarter of 2019 has led to the Westpac-AusChamber Actual Composite Index declining to 52.9.

The index for the previous quarter stood at 61.5.

Although the index rose following the Federal election in May this year, the outlook for the rest of 2019 and into 2020 for manufacturing is less positive, with the survey reporting a net 2 per cent of firms expect the general business situation to deteriorate. For exports, however, a net 8 per cent of respondents saw an increase in the September quarter, driven by a low Australian dollar.

The softening of sentiment in the sector was felt in the reduction from a net 36 per cent of firms in the previous survey expecting new orders to rise, to 25 per cent in the September quarter. Investment and employment results were also lower in the September quarter than in the June quarter.

At the same time, profit expectations grew in September, which Australian Chamber of Commerce and Industry CEO, James Pearson, took as an indication of the long-term health of businesses in the sector.

“This suggests businesses remain profitable and on balance are expecting to take on new workers,” said Pearson.

Person also highlighted the role of government in encouraging a more positive outlook for the sector.

“We urge the Government to continue to look to ways to encourage business growth including tax measures to stimulate investment in plant and equipment and new technology; and policies that will lift productivity. We support initiatives to increase investment in skills and infrastructure, lower energy costs, and cut red tape, including in workplace relations.”

Westpac senior economist, Andrew Hanlan, highlighted that one reason for the lower results in the September quarter were the impact of decisions made elsewhere in the economy.

“The construction sector is in downturn, led by home building. Consumer spending is declining in per capita terms, at a time of flat real wages. These dynamics are having negative spill-over effects to manufacturing,” he said.