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Survey finds that manufacturing activity picked up in December

10 January, 2007

Growth in Australia's manufacturing activity picked up in the December quarter 2006, albeit from a low base.

The improvement was underpinned by a strengthening in sales, exports and new orders. According to The Australian Industry Group -PricewaterhouseCoopers Survey of Australian Manufacturing, the net balance of firms surveyed reporting higher production increased to +17%, from +8% in the September quarter 2006.

Ai Group Chief Executive, Heather Ridout, said the result was encouraging news for Australian manufacturers in the lead-up to Christmas, but cautioned that conditions in the industry remain mixed.

"It is encouraging to see the lift in activity in the industry following a persistently weak series of quarters. The challenge will be to consolidate this performance in the face of rising interest rates, a strong exchange rate and continuing weakness in the housing market. The easing of expectations for activity over the next 12 months reflects the judgement that these factors are going to exert a negative impact on the industry in the period ahead," Ridout said.

PricewaterhouseCoopers Industrial Products Leader, Graeme Billings, said to maintain their competitiveness manufacturers would need to continue to look carefully at ways of reducing unnecessary costs and inefficiencies in their operations.

"The survey highlights that cost pressures will still be strong into 2007. As an insurance against the improvement in business conditions dissipating, business needs to focus strongly on cost control, innovative improvements and skill development," Billings said.

Summary of key findings for the December quarter 2006:

Manufacturing production growth improved for the second consecutive quarter.
- Production growth was reported in 8 of 12 sectors, up from 6 in the September quarter 2006.
- Production growth improved in all states, except Victoria.
- Growth in sales, new orders and exports continued to strengthen.
- Inventory growth was steady. Supplier deliveries increased at the fastest rate in over two years.
- There was an increase in order backlogs for the first time since the June quarter 2004, while capacity utilisation increased for the third consecutive quarter.
- Employment increased moderately after six consecutive declines, and overtime increased.
- Growth in new capital expenditure continued to moderate.
- The rate of increase in raw material costs eased slightly. By contrast, selling prices continued to increase at a faster rate. Wages growth strengthened. 
Production growth is forecast to improve in the next three months, underpinned by a pick-up in sales and exports. Growth in new orders is likely to remain unchanged.

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