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Manufacturing confidence surges due to strong performance

24 March, 2016

Australia's manufacturers have started the new year with a surge of confidence after a sharp jump in the March quarter across a range of measures of performance in the Australian Chamber-Westpac Survey of Industrial Trends.

Patricia Forsythe, Spokesperson for the Australian Chamber, said:

"The latest Australian Chamber-Westpac Survey of Industrial Trends shows the resilience of Australian manufacturing, which is improving its performance despite some headwinds.

"It is pleasing to see such a broad base to the improved performance, with new orders, output, order backlog, overtime and employment all strengthening in the first quarter of the year."

Andrew Hanlan, Senior Economist at Westpac, said:

"The Westpac-AusChamber Actual Composite index strengthened in the March quarter to 61.4, up 7.1 points, from 54.3 in December and from 56.4 on average in 2015.

"The trend strengthening of the Composite index in 2015 and into 2016 is evident across new orders, output, order backlog, overtime, and an emerging broadening to employment.

"Manufacturing is benefitting from a strong upswing in new home building activity, an uptrend in renovation activity, stronger consumer spending over the past half year and a significant improvement in competitiveness from the near 25 per cent fall in the currency against the US dollar since mid-2014. Even so, the cycle remains constrained. Mining investment is turning down sharply and global fragilities persist.

"Exports are rising modestly, supported by the lower currency but are constrained by still sluggish world growth. A net 2 per cent of firms reported a lift in exports.

"Expectations are positive. The Expected Composite index, despite edging one point lower, is elevated at 58.8, with firms' anticipation a rise in new orders and output. Firms plan to respond to this strength by expanding their workforce, as well as increased overtime.

"Businesses are looking to 2016 to be a positive year for profitability, driven by increased turnover and a lower Australian dollar boosting export returns. A net 31 per cent expect profits to increase.

"Investment intentions have strengthened, consistent with an extended trend reduction in the sector's spare capacity and improving profitability. A net 33 per cent of firms expect to increase equipment spending in the next year.

"The survey's Labour Market composite rose to 56.9 in March, to average 55 over the past six months, up from 51 a year ago. The Index, which correctly foreshadowed the strengthening in economy-wide jobs growth evident over the past year, points to further solid gains in 2016."

Tim Hicks, Acting Director of Economic and Industry Policy at the Australian Chamber, said:

"While the signs are encouraging, we need policy-makers to fortify the confidence of industry through undertaking a tough but essential agenda of reform, including to tax, workplace relations and competition policy.

"Australia needs an efficient manufacturing sector if we are to compete against the rest of the world. Right now Australia stands 21st on the World Economic Forum's Global Competitiveness Index, but with sensible policy settings we should be able to reach the top 10 by 2030, if not earlier."

There were 317 respondents to the Australian Chamber-Westpac Survey of Industrial Trends from across the manufacturing sector. The survey was closed on March 7. Scores above 50 indicate that positive responses outnumber negative ones. The survey, the longest running business survey in Australia, dating from 1966, provides a timely update on the manufacturing sector and insights into economy-wide trends.

The survey results are available on the Australian Chamber website.

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