Australia’s manufacturers have rebounded strongly in recent months and are confident of improving profits next year due to rising turnover and a lower Australian dollar, the September quarter Australia Chamber-Westpac Survey of Industrial Trends has found.
The Westpac-AusChamber Actual Composite index rebounded in the September quarter to 57.3 points, up 2.3 points, returning the index to near its 2015 average. The above-par reading for the Composite index, which trended higher in 2014 and 2015, reflects strength across new orders, output and overtime, and an emerging resilience in employment.
“Manufacturing is benefitting from a strong upswing in new home building activity, although rates of growth have moderated, and a lift in renovation activity,” said Andrew Hanlan, Senior Economist at Westpac. “It is also benefitting from a significant improvement in competitiveness flowing from the sharply lower currency, down 28% against the US dollar since the 2013 peak.”
The report found that businesses are looking to 2017 to be a positive year for profits, driven by rising turnover and a lower Australian dollar boosting export returns. A net 25% of respondents expected profits to rise in the 12 months to come. Positive expectations among manufacturers were centred on new orders and output, with firms planning to respond by increasing overtime and, at the margin, adding to their existing workforce. However, Hanlan stressed that the cycle remains constrained.
“Mining investment is turning down sharply and global fragilities persist,” he remarked. “Consumer spending was solid over the past year, but remains far from strong. The modest uptrend in exports appears to have stumbled in 2016, with respondents reporting export deliveries were unchanged in the September quarter. Expectations are for the uptrend in exports to resume, supported by the relatively low Australian dollar, but constrained by weak world trade.”
Equipment investment intentions strengthened over the past two years, consistent with a trend reduction in the sector’s spare capacity and improving profitability. A net 21% of firms expect to increase equipment spending in the next year. Investment plans for building investment are more muted, a net positive 8%.
The Survey, which closed on 2 September, canvassed 304 respondents from across the manufacturing sector. James Pearson, CEO of the Australian Chamber of Commerce and Industry, said it showed that Australian manufacturing is turning circumstances to its advantage.
“Manufacturers are tapping into new home building and renovation activity in Australia and a more competitive currency internationally to make sales at home and abroad,” said Pearson. “The emerging resilience in employment is pleasing to see, as is the renewed strength across new orders, output and overtime.