Australian Manufacturing Gets Big Boost
The economic outlook for manufacturing might be looking up after two key indicator reports suggested that the Australian economy has turned a corner. It appears that the positive outlook for Australian manufacturing is close to being realized. Westpac’s consumer confidence sentiments insights suggested that Aussies are increasingly looking to spend, with a 5.3% rise in confidence in November, news that was compounded by NAB’s business confidence equivalent, which also saw a rise. Though the commercial outlook was not quite as strong as the consumer version, both were marked improvements on previous months and backed up a wider feeling that Australia’s period in the economic doldrums might be coming to an end. Manufacturing and mining plant and equipment Australia specifically continue to lag the wider economy, with forward orders a particular pain point, but even within that, the prospects were still improved on what they have been in recent months, suggesting a positive momentum.
Creditorwatch analysed the data for Industry Update, with Chief Economist Ivan Colhoun suggesting that, while not completely out of the woods, there were reasons to think that the long-term lag might be about to come to an end. “It’s probably getting close for Australian manufacturing,” he said. “Lower interest rates would help house construction further, though that does not look likely until the first half of next year. “Negative forward orders mean more heavy steel fabrication companies are reporting a drop in orders than are reporting an increase. A smaller negative means that there are still more firms reporting deteriorating orders than improving orders, so it is still not great. But it may be suggesting we are getting close to the low point for the manufacturing cycle. I suspect the beginnings of an improvement in building approvals is helpful as the house construction sector is important for many Australian manufacturing processes.”
Notably, manufacturing was singled out as an area where the performance of the sector in Australia was likely to be most heavily impacted by global conditions rather than more localised issues. The jobs data, according to Colhoun, was even more difficult to parse. “I think the problem is very similar across the globe, due to the common shocks being experienced,” he said. “High interest rates and some pull forward of spending on manufactured goods during COVID. Improved post-pandemic supply chains are likely to also be allowing more import competition. This is well reported to be affecting the steel sector. I do not have a good explanation for the plunge in unemployment expectations – it does look somewhat unusual and runs contrary to the trend in job advertisements which fell again in October after several broadly steady months.”
“At face value, it says consumers are more optimistic about their job prospects. It is not clear why they think that. Are they feeling generally more positive about the economy because of income tax cuts? Probably. This might mean they extrapolate this to a better job market. As before, there is not a confirming signal yet from job advertisements. Regarding manufacturing’s staffing troubles, traditional blue-collar occupations, along with healthcare and social assistance, continue to report staffing issues, while traditional white-collar professions have less problems sourcing staff. However, the outlook is optimistic with news like ARB’s expansion creating manufacturing jobs. As job ads slowly drop, this should loosen up the labour market with some benefit to manufacturing, however, the government’s tightening of immigration and student numbers will tend to work in the other direction, unfortunately.”
