Weak start to year for manufacturers, ACCI-Westpac survey finds

Weak start to year for manufacturers, ACCI-Westpac survey finds

New orders lodged with Australian manufacturers have fallen to levels last seen during the Global Financial Crisis, excluding the 2020 lockdown period, the latest ACCI-Westpac Industrial Trends survey has found.

Westpac senior economist Andrew Hanlan said that manufacturers experienced a particularly weak start to the 2024 year, as conditions deteriorated from an already soft end to 2023.

“The Westpac-ACCI Actual Composite weakened in the opening quarter of 2024, shifting down from a break-even mark of 50.1 at the end of 2023, to a reading of 43.1,” Mr Hanlan said.

“That sub-50 result suggests that conditions in the manufacturing sector deteriorated in the period. The March quarter survey reported a decline in new orders, a fall in output, a reduction in overtime and a material downsize to employment.

“The mood of manufacturers about the general business outlook for the next six months moved deeper into pessimistic territory. Those expecting a deterioration shifted from a net 41 per cent to a net 56 per cent.

“New orders weakened from already soft results for the past three quarters, when they were broadly flat, to an outright decline. In the March quarter, a net 13 per cent of respondents reported a decline in new orders. Falling new orders speaks to the combined impact of soft underlying demand and an apparent slower than usual return to business from the summer holidays.

“This is the largest share of respondents reporting declining new orders since the GFC (excluding the 2020 COVID-19 lockdown), albeit it is well above the GFC low of –37 per cent.

“Official data confirmed that domestic demand all but stalled at the end of 2023, led by consumer spending softness as household incomes were squeezed by high inflation, higher interest rates and additional tax obligations.
“The Expected Composite Index improved to 54.9, up from 52.4 the period prior.

“The March quarter weakness in new orders was likely exaggerated by a slower than usual return from summer holidays. A net 13 per cent anticipate new orders will rise next quarter. However, this is coming from a low base following the significant decline in the March quarter, pointing to only a modest increase in output over the first half of 2024.

“That said, expectations have been over-optimistic for the past three quarters. Whether that over-optimism is also boosting the latest result is a key source of uncertainty in the current soft economic environment.

“Cost pressures facing manufacturers, while still elevated, are trending down from recent historic highs. This is alongside the softening of demand. The number of respondents reporting a rise in average unit costs moderated from a net 60%, on average for the past two years, to a net 29 per cent in March.

“Profit expectations weakened further. The number of respondents expecting a decline over the next year deteriorating from a net 4 per cent to a net 11 per cent, speaking to the ongoing challenging backdrop for the sector. A pivot towards to less contractionary macro policy settings, which is expected to emerge mid-year, would be welcomed by the sector.

ACCI chief executive officer Andrew McKellar said wages were the most significant cost pressure on manufacturers.

“Forty per cent of businesses surveyed expected the next wage agreement to deliver an outcome above the last,” Mr McKellar said.

“With the Annual Wage Review currently underway, ACCI is of the view that another large increase in minimum and modern award wages, untethered to productivity, could delay the expected decline in inflation.

“ACCI believes that the challenges for businesses will be compounded by inflexible, productivity-sapping industrial relations legislation recently passed by Parliament.

“In the upcoming budget, ACCI urges the government to do more to address the cost of doing business to ensure businesses remain viable.”

Jobs surge means labour market remains tight

Jobs surge means labour market remains tight

A surge in employment reported today highlights the need to address Australia’s skill shortage urgently.

“Employment bounced back strongly in February, rising by 116,000 people, and hours worked grew by 53 million hours, following declines in December and January,” ACCI chief executive officer Andrew McKellar said.

“More than two-thirds of the new jobs created in January were full-time. Employers who had been recruiting in earnest in January have been able to tackle the backlog of vacant positions.

The labour market remains tight, with unemployment dropping back to its August 2023 level of 3.7 per cent.

“Job vacancies remain at almost double their pre-COVID levels, with employers continuing their struggle to find people with the right skills to fill unfilled positions,” Mr McKellar said.

“The return to work in February is welcome and highlights the continuing need to address skills shortages and ensure that employers have access to employees with the necessary training and experience to fill vacant positions.”

Need for new gas supply is now critical

Need for new gas supply is now critical

Investment to expand Australia’s gas supply is urgently needed and governments need to end the roadblocks to securing reliable energy supply.

“There is a looming crisis, with shortfalls likely to bite as early as next year.  Years of policy mismanagement and obstruction are coming to a head,” ACCI chief executive officer Andrew McKellar said.

The Australian Energy Market Operator has issued the warning today in its Gas Statement of Opportunities.

“Our existing gas fields, particularly in the south, are running out, but not enough is being done to replace this supply,” Mr McKellar said.

“New investment in gas supply is urgently needed to meet future gas demand for homes and business, as well in ensuring the reliability and security of the renewable electricity network.

“The situation is particularly dire in Victoria. The gas supply from Bass Strait is rapidly depleting. Victoria needs a new source of gas, yet the state government is actively blocking new gas field development.

“Governments need to abandon their ideological opposition to new gas field development. Gas is essential during the transition to renewables.

“Investment in new distribution infrastructure to improve the efficiency of supply is welcome, but we still need gas to send through the pipes.

“Gas will play a key role in stabilising the variability of electricity supply in renewable energy networks as coal-fired power stations are retired.

“More gas, not less, is needed to ensure the stability and reliability of the electricity network over the next 25 years.

“It is farcical that gas power generators may need to supplement gas usage with liquid fuels, such as diesel and petrol, which produce significantly higher emissions, to meet peak demands if there are not any new supplies of gas by 2028.”

Support for Paid Parental Leave, but the red tape burden remains for small businesses

Support for Paid Parental Leave, but the red tape burden remains for small businesses

The Australian Chamber of Commerce and Industry welcomes the passage of the extension of the Paid Parental Leave (PPL) scheme to support working parents across Australia but urges the government to reduce the administrative burden of the scheme on small businesses.

“In passing the legislation, we would like to recognise the advocacy of Senator David Pocock and Senator Jacqui Lambie in obtaining $10 million in funding from the government to support small businesses in navigating the red tape burden that comes with administering the scheme,” ACCI chief of policy and advocacy David Alexander said.

“A better outcome would have been the extension accompanied by changes which would have allowed small businesses to opt into administering the PPL.

“Services Australia should make the payments directly to recipients, as it already makes every payment beyond the first 40-day period of PPL to all recipients regardless of organisation size.

“Small businesses are unnecessarily caught up in the payments process, which creates a significant administrative burden and payroll processing time. When problems arise with payments that are not the fault of the employer, they can take a lengthy period of time to resolve, often causing distress to employees and employers.

“Working towards less red tape, not more, is especially important for small businesses.

“We look forward to continuing to engage with the crossbench senators. ACCI will also seek to work constructively with the Department of Social Services and Services Australia to design improvements that will assist small businesses in administering the scheme.”

Tariff abolition a win for business and consumers

Tariff abolition a win for business and consumers

Australia’s largest and most representative business network applauds the government’s decision to eliminate around 500 ‘nuisance tariffs.’

“The elimination of these tariffs is a welcome decision towards reducing the cost of doing business within Australia, ultimately benefiting consumers,” ACCI chief executive officer Andrew McKellar said.

“ACCI previously advocated for the removal of nuisance tariffs, and we welcome the fact that the federal government has listened and acted.

“Removing these tariffs is an important step in simplifying the trade system and driving productivity.

“It will deliver broader economic benefits, especially welcome during the current cost of living crisis, with consumers benefiting from lower costs of imported goods.

“Ensuring our border systems are as efficient as possible is vital. It means Australian enterprises can spend more time on doing business rather than administering red tape.”

The red tape and distortions associated with the tariffs have been an unnecessary drag on the economy. The Productivity Commission has highlighted that tariffs contribute just 0.3 per cent of total government revenue but bear substantial compliance costs.

“The costs of tariffs have eclipsed any revenue benefit generated. Removing these nuisance tariffs is a prudent step, saving business $30 million on top of the government’s costs by avoiding this bureaucratic process,” Mr McKellar said.

Australian economy inching closer to a halt

Australian economy inching closer to a halt

Australia’s lethargic economy is being weighed down by continuing poor productivity, with no plan on the horizon to reverse the trend.

National accounts data released today by the Australian Bureau of Statistics shows gross domestic product (GDP) growth almost crawling to a halt, at just 0.2 per cent in the December 2023 quarter, following growth of 0.3 per cent in the September quarter. Overall, the economy has grown 1.5 per cent for the year.

“Australia desperately needs to turn around this trend of productivity decline. In the short term, we must avoid a recession and the devastating impact that would have on businesses and households,” ACCI chief executive officer Andrew McKellar said.

Recent analysis by the Productivity Commission shows productivity contracted 3.7 per cent in 2022-23.

“As the government’s industrial relations legislation starts to roll out at ground level, the negative impacts will manifest themselves in slower growth and productivity,” Mr McKellar said.

The deteriorating economic situation continues to be masked by strong population growth. GDP per capita has declined for three consecutive quarters, a clear indication that conditions are moving in the wrong direction.

Cost of living pressures, from high inflation and declining real income, have weighed heavily on consumers over the past year, with household spending inching up 0.1 per cent for the quarter.

The rising cost of doing business is also overwhelming. Under the weight of sharply rising materials and labour costs, business margins are being squeezed, with the gross operating surplus of private corporations down 3.9 per cent during 2023.

Government measures not linked to productivity have contributed to compensation of employees rising by 8.4 per cent in the year to December, putting upward pressure on prices. Recent Treasury analysis shows that high wage growth made up almost two-thirds of headline inflation in 2022-23.

These pressures are also suppressing business investment, with investment in machinery and equipment down 1.3 per cent for the quarter. This has continued to deteriorate since the end of the temporary full expensing measure in June.

“Greater attention needs to be paid to driving business investment, essential to restoring productivity growth and reigniting the economy,” Mr McKellar said.