Australia | Jun 18 2009
By Chris Shaw
More signs the Australian economy is emerging from the downturn are flowing through with the Westpac-ACCI Survey of Industrial Trends for the period ending June 12th showing a slight improvement, the composite index rising by 3.9 points to a reading of 38.3. While this remains below the 50-point level indicative of a contraction, the result compares to a 6.9 point fall recorded in the previous month.
Westpac senior economist Anthony Thompson notes the outcome broadly matched expectations and with the economic backdrop now a little less bleak there has been a corresponding lift in expectations, the expected composite index rising by a more significant 12.3 points to a reading of 47.6.
This is its highest reading since the September quarter last year and was matched by a 57-point increase in general business investment to a minus 4% reading, its highest since the end of 2007, though as Thompson notes the improvement here may be because deteriorating conditions are now a present reality rather than a prediction of the future outlook.
While labour demand indicators also rose in the latest survey, they confirm the slowing in jobs growth indicated by other economic measures, Thompson expecting Australian unemployment will eventually push above the 8% level. The labour market composite net balance reading supports this as it currently implies negative employment growth of 1.5% annually.
The survey showed a somewhat surprising easing in credit conditions, though Thompson notes the proportion of those responding still seeing credit availability as a constraint remains at 34-year highs. Only insufficient orders rate as a bigger constraint at present.
While planned investment spending has lifted somewhat as expectations have improved, Thompson points out it remains at historically weak levels and continues to imply investment spending will fall over the course of the year. This is supported by the fact while net capacity utilisation improved, it remains weak at minus 29% compared to an average over the past decade of minus 7%.
While the survey offered some evidence manufacturing price pressures are easing, Thompson notes unit cost expectations remain above selling price expectations,meaning there will still be strong pressure on profit margins in coming months.