Most Outcomes More Subdued As General Business Sentiment Declines
21 JUNE, 2012
203rd ACCI-Westpac Survey of Industrial Trends - June Quarter 2012
The June quarter ACCI – Westpac Survey reveals a decline in general business expectations over the second half of 2012. Manufacturing activity indicators have remained mixed but generally more subdued than in the March quarter, with most actual outcomes falling short of prior expectations. The net New Orders indicator has firmed marginally but remains negative, although close to half the manufacturers surveyed again reported no change in demand.
The net Employment indicator has remained negative, well below predictions and softer than in the March quarter. Manufacturers expect little net change in their employment over the September quarter. Investment projections for plant and equipment have firmed but projected capital spending on buildings and structures remains subdued.
The net Profit Expectations indicator for the next 12 months is well down, turning negative. Average selling prices have declined at a pace similar to three months ago but at a faster pace than expected in March. Only a very marginally positive net outcome is predicted for the next three months. The net Average Unit Costs indicator has also remained virtually unchanged and well above prior predictions. Costs are expected to continue rising at a similar pace in the next three months further squeezing profit margins.
Mr Greg Evans, Director of Economics and Industry Policy, Australian Chamber of Commerce and Industry, commented:
"Results of the June quarter Survey conducted after the 2012-13 Federal Budget are disappointing, with declining general business expectations and subdued activity indicators generally falling well short of predictions. The previous quarter's marginal improvement in some actual indicators has proved short-lived and there has been no post-Budget bounce.
"Employment is down and export performance remains subdued with only a slight firming predicted. The net outcome for New Orders which slumped three months ago remains negative although some improvement is predicted. The only two brighter spots are a firming of the net Output indicator, with stronger forward demand and production projections for the next three months, and an encouraging turnaround in manufacturers' investment plans for plant and equipment, which are now modestly positive.
"It is concerning that production costs have continued to increase strongly while selling prices have declined at a faster pace compared to the March quarter. These outcomes have put a further squeeze on manufacturer’s profit margins, as manifested in the negative net Profit Expectations indicator.
"The recent decision on minimum wages increases and the impending carbon tax on July 1st will put further cost pressure on manufacturers, particularly for small businesses. Given the current backdrop of heightened risks in Europe and downbeat domestic economic sentiment, the Government should not be imposing further costs on manufacturers but looking at opportunities to relieve their overall tax burden."
Mr Andrew Hanlan, Senior Economist, Westpac Banking Corporation, commented:
"The Westpac-ACCI Composite Index failed to improve in the June quarter. The Index was all but unchanged from three months ago, at 47.9. The March and June updates are the softest results since the global recession of 2008/09 and, before that, since the downturn of 2001. That said, the current level is well above lows touched in past cycles.
"The Composite Index, which edged 0.1 of a point higher in the June quarter, has now been in the contractionary zone for five consecutive quarters. The manufacturing sector has experienced a clear loss of momentum since 2010, a year when the Index averaged a reading of 54.
"The forward looking indicators betray a sense of uncertainty, an understandable result given current global fragilities. The Expected Composite Index for the quarter ahead was little changed, up 0.2 of a point to 51.7. However, respondents doubt the durability of any bounce, with a net 21% expecting the general business situation to weaken in the next six months – a deterioration from a net 11% just three months ago.
"The labour market looks set to remain soft. The Labour Market Composite Index was again well below par and points to jobs growth of less than 1% annualised over the next six months. Such an outcome would place modest upward pressure on the unemployment rate, consistent with Westpac forecasts.
"The global slowdown is contributing to the weak conditions faced by Australian manufacturing. The Westpac-ACCI survey confirms the pressure on exports. Deliveries of exports declined for a fifth consecutive quarter, as measured by the net balance of respondents. This is a more protracted period of export weakness than during the 2008/09 episode.
"The survey also confirms an absence of price inflation. On balance, average selling prices declined further in the June quarter. While costs continue to rise, the dominant factor shaping price setting is the weak demand environment.
"The message from this survey is clear. Conditions in the Australian economy are subdued and this is feeding through to sub-trend jobs growth. The lack of inflation pressures provides the Reserve Bank with the scope to nudge interest rates lower."
For further information:
Greg Evans Director of Economics and Industry Policy, ACCI (02) 6273 2311 / 0407 204 559
Andrew Hanlan Senior Economist, Westpac (02) 8254 8720/ (02) 8254 9337
Eugene Bajkowski Consulting Economist, ACCI (02) 6273 2311/ (02) 6249 6128