Australia | Jun 05 2007
By Chris Shaw
With most indicators of the Australian economy showing signs of strength it is little surprise the latest Westpac-ACCI Survey of Industrial Trends showed a strengthening of conditions in the manufacturing sector over the June quarter. The index rose 1.9 points to 56.1, reversing the 0.7 point decline recorded in the March quarter.
Above trend conditions are likely to persist given the Expected Composite Index that forms part of the survey remained strong, though Westpac senior economist Anthony Thompson notes overall expectations for the September quarter have come down slightly from what were very high levels in the previous survey.
Thompson points out general business sentiment has risen, likely in response to the outlook for stable domestic interest rates in coming months at the same time as both global growth and local activity levels are solid and trending higher.
The only disappointment in the survey was average selling prices falling short of expectations, Thompson suggesting this now brings into question the stronger price predictions expected in the September quarter. This could pressure margins, as he points out unit cost inflation is expected to continue tracking higher in coming months.
Supporting this view on margins is the fact pricing power in the manufacturing sector remains weak, this despite the average selling price indicator turning positive for the first time in a year. Thompson notes this weak pricing power has been a constant in the sector for the last three years.
The survey also showed a moderation in company investment plans, though levels remain well above historical averages and indicate ongoing growth in investment spending.
In the bank’s view the survey findings should do little to shift the Reserve Bank of Australia (RBA) from its tightening bias, as while measures of capacity utilisation and labour market tightness eased slightly in the period they remain at elevated levels historically.