The ACCI-Westpac Survey of Industrial Trends found that although manufacturing is primed to surge with business sentiment jumping to levels not seen in decades, as expectations for future orders reach new heights, the sector’s recovery continues to be constrained by material and labour shortages.
“The latest quarterly Survey of Industrial Trends has confirmed that lockdowns and border closures continue to cruel our manufacturing sector. As these restrictions have been gradually removed, manufacturers are anticipating a strong and accelerated recovery in 2022,” ACCI chief executive Andrew McKellar said.
“However, structural issues with international freight supply chains mean manufacturers are finding it increasingly difficult to source key components of production – these material constraints are at levels not seen since the oil shock of the 1970s. With input costs increasing at a much faster rate than prices, manufacturers are facing significant cost pressures.”
Mr McKellar said skills shortages are also identified as a major impediment to the growth in Australia’s manufacturing output.
“With labour constraints recorded at their highest in 33 years, employers are having increasing difficulty finding experienced workers as a result of domestic and international border closures,” he said.
“Despite 71 per cent of manufacturers expecting an increase in new orders, the sector will not be able to realise its potential with material and labour constraints limiting production. Resolving these shortages will be critical for the industry’s sustained recovery.”
Mr McKellar said the survey results point to justification for continued supportive policy and the ACCI is calling on the government to consider a further extension of the instant asset write-off.
“This measure will see a return to strong business investment which will flow through to economic and employment growth,” he said.
Westpac senior economist Andrew Hanlan said that the stalling of conditions in the manufacturing sector, which emerged in the September quarter, extended into the December quarter.
“Conditions in the December quarter proved to be more challenging than respondents anticipated. The staggered reopening from the delta lockdowns in NSW and Victoria crimped demand, while significant supply headwinds continued, around the availability of labour and materials,” Mr Hanlan said.
“The Westpac-ACCI actual composite index held around the breakeven mark of 50, at 50.8, following a 51.2 in the September quarter and well down from a buoyant 63.1 in June, ahead of the delta outbreak. Output was flat in the quarter, the survey reports, so too employment levels in the sector. New orders expanded modestly, up a net +10 per cent, just sufficient to sustain output at current levels.
“The economy, which had considerable momentum ahead of the delta outbreak, is set for a strong recovery in 2022, supported by substantial policy stimulus. Pent-up household demand, an uptrend in home building activity, a lift in business equipment spending and a wave of public works projects will boost orders for manufacturers.
“However, at the same time, the survey highlights that the manufacturing sector faces considerable supply headwinds. This is leading to higher prices for consumers and is a potential handbrake on the pace of recovery.”
Mr Hanlan said manufacturers’ ability to produce is being constrained by difficulties in finding labour, which are the most acute since 1988, and difficulties in sourcing inputs, which are the most pronounced since the oil shock of the mid-1970s reflecting global supply bottlenecks and border closures.
“Manufacturers are facing intense and sustained cost pressures – at the highest level since 2008. A net 38 per cent reported a lift in costs in the December quarter. Profit expectations, while bouncing back on the prospective reopening and increased turnover, are stuck at levels a little below the long-run average in the face of rising costs,” he said.
