Business mood cools but remains positive – survey results reveal

The fourth-quarter results of the Australian Chamber-Westpac survey of Industrial trends, released today, show the outlook for Australian industry remains positive, but reinforces the need for policy certainty ahead of the federal election, to give business the confidence to invest and create more jobs.

“The Westpac-AusChamber Actual Composite Index declined in December 2018 to 63.1, down from 66.2 in September,” Westpac Senior Economist, Andrew Hanlan said.

“This is a still above average reading for the index.

“Positive conditions reflect the boost to manufacturing from increased investment in government infrastructure projects as well as private construction. Notably, state governments continue to add new projects to the investment pipeline.

“A relatively low Australian dollar and robust global growth are also supporting exporters.

“The level of home-building activity while high is beginning to moderate and consumer spending is patchy. A pressing negative is the continuing intense competition from offshore.

“The uptrend in exports has continued but near-term there is a degree of uncertainty.

“Overall expectations are positive, centered on new orders and output, as well as an expansion in employment.

“The general business mood cooled in the second half of 2018, albeit is still at positive levels, at a net +25%, down from almost +40% at the start of the year. There are some growing uncertainties, including global trade tensions and domestically around the unfolding housing downturn, as well as the outlook for public policy. Drought across much of the eastern states is concerning, with negative spill-over effects to manufacturing.

“The investment outlook for the sector is positive, in response to rising demand and improving profitability. A net 26% of firms expect to increase equipment investment in the next year.

“The survey’s Labour Market Composite, which broadly tracks economy-wide jobs growth, points to robust jobs growth into 2019. The index correctly foreshadowed the sharp acceleration in Australian employment through 2017, as well as some moderation in 2018.”

James Pearson, Australian Chamber CEO, said:

“We are pleased the outlook remains positive for Australian Industry, with business expectations firming up and signs of robust jobs growth heading into the New Year, but business confidence continues to suffer as a result of recent policy uncertainty and the approaching federal election.

“A net 25% of firms expect general business conditions to improve over the next six months. This is down from a net 37% in the June quarter.

“Australian businesses, large and small, are under pressure like never before, as a result of increased international competition and rising costs.  Major concerns continue over the high cost of energy and firms continue to report difficulty in finding labour.

“The Government needs to encourage businesspeople to invest, create wealth and provide more jobs for their fellow Australians.

“We need a bipartisan and nationally agreed solution to Australia’s energy crisis, unless we want our businesses to close their doors, lay off staff or relocate to other countries where energy doesn’t cost an arm and a leg.

“And we need practical solutions to solve our skills shortages. That means a combination of effective investment in education and training Australians for the jobs of today and tomorrow, and a strong skilled migration program to meet the growing and changing needs of our diverse and modern economy.

“As we turn the corner into 2019 and head towards the next election, we need the major parties and cross-benchers to show leadership and support policies that will boost business confidence and encourage investment.”

There were over 230 respondents to the Australian Chamber-Westpac Survey of Industrial Trends from across the manufacturing sector.

The survey, the longest-running business survey in Australia, dating from 1966, provides a timely update on the manufacturing sector and insights into economy-wide trends.

 The full report can be found on the Australian Chamber website.