Cost pressures take a back seat for manufacturers

Cost pressures and labour shortages are easing for manufacturers at the same time as demand for their goods is starting to dry up.

Cost pressures and labour shortages are easing for manufacturers at the same time as demand for their goods is starting to dry up. Photo: Getty

Most Australian manufacturers are no longer reporting higher prices for materials and other inputs, mirroring the slowdown in goods inflation around the world.

Less than 40 per cent of manufacturing firms surveyed by the Australian Chamber of Commerce and Industry and Westpac in the September quarter reported a rise in average unit costs.

While many firms are still feeling cost pressures, the proportion of companies finding it more expensive to produce their goods is down from the 67 per cent that ticked this box in the June quarter.

The findings align with cooling goods inflation domestically and around the world.

Finding workers has also got easier and firms were no longer reporting a serious shortage of labour supply.

Employment dynamics in the manufacturing sector had already started to weaken but fell further in the September quarter, with five per cent of firms reporting a decline in employment.

Given the slowdown in new orders and pessimistic business confidence revealed in the survey, manufacturers are unlikely to have much incentive to add to the headcount.

The labour market as a whole has been proving remarkably strong despite the economic slowdown.

August labour force figures from the Australian Bureau of Statistics recorded a stronger-than-expected 65,000 new jobs, with the unemployment rate holding steady at 3.7 per cent.

Job ads, however, have been sinking, suggesting the labour market is loosening up.

Employment marketplace Seek data recorded a 1.8 per cent fall in job ads in August and an uptick in applications per role.

The Westpac-ACCI composite index, which measures activity in the manufacturing sector, tracked sideways a touch above the break-even mark of 50.

This suggests conditions are reaching a stalling speed, reflecting flat new orders, declines in employment and overtime, and a modest uptick in output.

A pullback in the consumer sector is starting to weigh on activity in the business sector.

Confidence levels remain depressed in the consumer sector but did improve last week.

ANZ and Roy Morgan’s weekly survey observed a 2.2-point uptick last week, with the index reaching its highest level since April.

At 79.8 points, confidence is still well below long-run averages.


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