Manufacturers growing but crimped by labour and material shortages in June quarter

A long-running quarterly industrial survey has found conditions were expansionary in the June quarter, but growth is being held back by labour and material pressures as bad as they’ve been in a half-century.

The ACCI-Westpac Survey of Industrial Trends released on Tuesday has found an increased rate of growth since the March quarter and a rebound from the reopening of the economy.

The ability for manufacturers to meet new orders, however, was being made difficult.

“These shortages, as well as an energy crisis, have led to soaring costs and a squeeze on profit margins,” said Andrew Hanlan, a senior economist at Westpac.

“The Westpac-ACCI actual composite index – a gauge of business conditions – lifted to 64.5 in the June quarter, with a reading above 50 indicating an expansion. That is up from 56.7 in March and from around 51 over the second half of 2021.”

This represented a return to conditions seen before the outbreak of the Covid-19 delta variant.

“Output and new orders expanded at a faster pace in the June quarter of 2022. Manufacturers responded to this by growing their workforce and increasing overtime, also at a faster rate than in March, added Hanlon.

“Expectations are positive, with the Westpac-ACCI expected composite at 67.5, indicating respondents are anticipating that new orders and output will advance at a healthy clip in the September quarter.”

The economist added that labour constraints were at their most acute since 1974, and material shortages also their worst since the oil shock.

While the “expected composite” result in the survey indicated new orders and output were expected to increase healthily in the September quarter, investment intentions (positive overall) were continuing to soften. 

Only a net 8 per cent of firms intended to up their investment in plant and machinery over the next 12 months. 

High inflation of about 5 per cent has seen the Reserve Bank lift interest rates the last two times it met. Nine newspapers reported on Tuesday that that the RBA’s next decision, to be made on July 5, could be to lift rates by as much as 0.65 per cent.

Picture: www.aigroup.com.au

Subscribe to our free @AuManufacturing newsletter here.