Australia: Solid manufacturing activity but momentum is moderating - Westpac

Simon Murray, Research Analyst at Westpac, notes that the Australia’s Westpac-Chamber Actual Composite index moderated in March 2018, declining to 58.3 from 63.4 in December.

Key Quotes

“That pace of expansion has eased from 66.1 in September which followed a sustained uptrend that emerged after the index fell to 55.1 in June 2016, a dip coinciding with the July Federal election.”

“The above par reading for the Composite index reflects strength in new orders, output, overtime and backlog though momentum has eased a touch. Notably new orders increased at a slower rate early in 2018. Employment consolidated after a pick-up in jobs during 2017.”

“Manufacturing is benefitting from: a strong upswing in public infrastructure investment; renewed expansion in non-mining business investment; and a lift in global growth combined with a relatively low level of the Australian dollar. Against this are negatives relating to: moderate consumer spending constrained by slow wage growth; and continuing intensity from offshore competition. The level of home building has also turned lower from a high base.”

“The uptrend in exports has continued at a moderate pace after stumbling back in 2016. A net 8% of firms indicate a rise in export deliveries in March. Export expectations are similarly positive as support from a relatively low AUD is coinciding with an uplift in world trade activity. Globally, the manufacturing sector is enjoying a period of expansion.”

“Expectations are positive, centred on new orders, output, backlog and overtime. The Expected Composite is at 60.4 in March, down from 61.8 in December and off the peak of 65.7 in June. A net 38% expect the general business situation to strengthen over the next six months, an upbeat mood.”

“Equipment investment intentions of respondents have been positive over recent years in response to rising demand. This is also consistent with a reduction in the sector's spare capacity and improving profitability. A net 10% of firms expect to increase equipment investment in the next year. Building intentions are at a net 3%, maintaining December's recovery to a net 2% from September's net -3%.”

“The survey's Labour Market Composite, which broadly tracks economy-wide jobs growth, is at 53.2, pointing to an easing in momentum from well above average jobs growth. The index correctly foreshadowed the lift in employment through 2017 and points to solid results over the near-term.”