After a slower than usual start to the year, new orders lodged with Australian manufacturers rebounded, the latest ACCI-Westpac Survey of Industrial Trends has found.

Westpac economist Ryan Wells said that the improvement in demand marks a welcome turnaround from recent weakness, although there remain challenges and uncertainties in the outlook for manufacturers.

“The Westpac-ACCI Actual Composite improved materially heading into mid-year, lifting from 43.4 in the March quarter to 54.1 in the June quarter,” Mr Wells said.

“With a reading above the break-even threshold of 50, this indicates that conditions are improving in the manufacturing sector. Compositionally, a bounce in new orders and an increase in output were the key drivers, while respondents reported further declines in employment and overtime.

“The broader economic backdrop for manufacturers has been challenging over the past year, highlighted by stalling new orders growth. This culminated in a material decline in orders in March 2024, marking a slower than usual return to business from the summer holidays.

“That weakness was not expected to last though, and orders have posted a solid rebound in June 2024, with a net 20 per cent of firms reporting a rise.

“The Expected Composite moderated slightly, from 54.7 in March to 52.8 in June, indicating that firms still expect demand conditions to improve, albeit at a more modest pace.

“That said, supply-side issues remain a key concern of manufacturers. The improvement in labour availability last quarter looks to have been temporary, with a net 12.1 per cent of respondents finding labour ‘more difficult to find’, providing manufacturers with limited scope to expand the size of their workforce.

“Additionally, cost pressures facing manufacturers remain acute and incredibly volatile. The latest survey finds a net 71 per cent of firms reported a rise in average unit costs, the highest result since the cycle peak of a net 76 per cent in December 2022.

“While costs have eased slightly on a year-average basis, from a net 68 per cent in June 2022 to 51 per cent in June 2023, they remain well above the 2009-2019 average of 19 per cent.

“The mood of manufacturers about the general business outlook for the next six months has improved but remains deeply pessimistic. Those expecting a deterioration outnumber those expecting an improvement by a net 42 per cent in June, compared to a net 56 per cent in March.

“Profit expectations improved, following the bounce in demand. However, they remain well below average levels, as elevated and volatile cost pressures continue to loom over manufacturers. On balance, respondents neither expect an improvement or a deterioration in profits over the coming year.

ACCI chief executive Andrew McKellar says the survey results show the economy is walking a tight rope.

“The challenges we are already seeing for businesses will be compounded by inflexible, productivity-sapping industrial relations legislation over the coming months,” Mr McKellar said.

“More business investment is needed to lift productivity and drive economic activity.”

Mr McKellar urged the federal government to take immediate action to address stalled productivity.

“Lifting productivity has been identified as a key priority by the government and it must take decisive action to support Australia’s businesses immediately,” Mr McKellar said.

He also pointed to the recent minimum wage increase awarded by the Fair Work Commission as another burden for businesses to bear.

“The cost-of-doing-business pressures are mounting and significant wage increases through the annual wage review will heavily impact businesses,” Mr McKellar said.