Australia | Jun 24 2010
By Chris Shaw
The 195th Westpac-ACCI Survey of Industrial Trends was completed earlier this month and showed improved actual activity net indicators for the June quarter compared to the March quarter. Gains were recorded in most key components, including output, new orders, order backlog and employment.
But Westpac senior economist Anthony Thompson notes the second quarter has some seasonal factors, so on a seasonally adjusted basis the Index actually declined slightly. Westpac's Actual Composite Index fell 0.4 points to a reading of 56.6 points, a result Thompson notes was well below stronger predictions in the prior survey's Expected Composite Index of a 64.7 reading.
The good news was the result remains well above the decade average of 52.1, which Thompson notes means manufacturing expansion continued at an above-trend pace in the June quarter. A further deceleration is expected in what is traditionally a seasonally stronger third quarter, though Thompson expects the Index will remain at an above-trend level.
The Expected Composite Index also fell in June, down 9.9 points from a record high to a reading of 54.8 points. As with the Actual Composite Index, the Expected Composite Index reading remains above its average over the past decade of 53.1 points.
Westpac's modelling suggests the resilience of the Actual Composite Index points to a strong pick up in overall private demand and investment growth through 2010. This is supported by capacity utilisation registering its fifth consecutive rise and an improvement in the investment plans of manufacturers.
The net balance for plant and equipment plans double in the second quarter to plus 18%, Thompson noting this is the highest reading for this measure since the final quarter of 2007. Net balance for building plans also rose to plus 10% from minus 7% previously, the highest reading here since the first quarter of 2008.
One issue could be rising wage inflation through the second half of this year, as Thompson notes wage expectations posted a fifth consecutive quarterly increase. Manufacturing price pressures are also building, as selling prices rose for the first time since the final quarter of 2008. On the plus side, while unit cost pressures are rising they also remain well below decade averages.
The survey results showed a slight dent in general business sentiment, this measure falling 17 points to a plus 13 reading. The decade average is a reading of minus 3.0 points. This is the lowest reading for this measure since the second quarter of last year.
Employment growth should also accelerate in the bank's view given current levels of labour demand indicators. Thompson estimates employment growth of 3% for the year in the second half of 2010, which should equate to unemployment of 5.0% by the end of the year.
Perceptions of labour market tightness eased slightly in the second quarter, the survey showing the net balance reporting labour as harder to get fell to minus 3% from minus 2%. This compares to a decade average of plus 5%. Thompson suggests this net balance is yet to reach a level consistent with unemployment lower than the current rate of 5.2%.
Export indicators in the Survey improved slightly but remain at sub-par levels. Thompson expects stronger export growth in the third quarter, helped by the recent fall in the Australian dollar against the US dollar.
Thompson is forecasting a net balance for expected export deliveries of plus 6%, down from plus 8% previously. This suggests this measure will be below the decade average expectation of plus 12% for the eighth quarter in succession.
