Australia: Manufacturing expanding but momentum eases a touch - Westpac

Simon Murray, Research Analyst at Westpac, notes that the Westpac–AusChamber Actual Composite index fell in December 2017, down to 63.4 from 66.1 in September. That is a slight pull back after an extended rebound from 55.1 in June 2016, a dip coinciding with the July Federal election, he further adds.

Key Quotes

“The above par reading for the Composite Index, which has trended higher since 2014, reflects strength in new orders, output, overtime, backlog and employment. While the momentum in new orders, output and backlog moderated, employment remained robust.”

“Manufacturing is benefitting from: a strong upswing in public infrastructure investment; renewed expansion in non-mining business investment; and a still relatively low Australian dollar combined with a lift in global growth. The level of home building activity is still high, but it is now turning lower. More pressing negatives are: subdued consumer spending constrained by slow wage growth; and continuing intensity from offshore competitors.”

“The uptrend in exports has continued at a moderate pace after stumbling in 2016, with a net 4% of firms indicating a rise in export deliveries. Export expectations are moderately positive, coinciding with rising world trade volumes after a period of contraction as well as support from a relatively low AUD.”

“Expectations are positive, centred on new orders and output as well as backlog and overtime. The Expected Composite is at 61.8 in December, down from 65.2 in September and 65.7 in June. A net 29% expect the general business situation to strengthen over the next six months. While lower than a net 35% in the past quarter, the survey continues to reflect an upbeat mood.”

“Equipment investment intentions of respondents have been positive over recent years in response to rising demand and consistent with a reduction in the sector's spare capacity, as well as improving profitability. A net 15% of firms expect to increase equipment investment in the next year. Building intentions have recovered to a net 2% in December after dipping to a net -3% in September.”

“The survey's Labour Market Composite, which broadly tracks economy-wide jobs growth, is at 60.0 in December, pointing to continued solid jobs growth in the near-term. The index correctly foreshadowed the acceleration in Australian employment through 2017.”


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