Manufacturing sector sees decline in November

Australia’s manufacturing sector has shrunk in November due to a lack of workers, disruptions in the supply chain, and rising energy costs.

Its performance slid in five of the six sectors sampled in the Australian Industry Group’s manufacturing index, with building, wood and furniture products lifting a touch on a rise in new orders.

But demand elsewhere was sluggish, with all other sectors reporting fewer new orders.

The textiles, clothing, footwear, paper and printing sector declined sharply, falling 24.3 points to 29.5 points, with higher input prices and interest rates and overseas competition challenges for the sector in November.

The overall index fell 4.9 points to 44.7, with a reading below 50 indicating a contraction in activity.

The slide in activity in November followed three months of flat conditions.

Ai Group boss Innes Willox said decaying national and global economic conditions were starting to weigh on demand for goods.

“Manufacturing is at risk of being squeezed between deteriorating demand conditions and persistent supply-side pressures,” Willox said.

He said the competitive labour market and supply-chain disruptions had probably peaked, but remained well above normal levels.

Rising energy prices were also worrying manufacturers.

Weakening business conditions also showed up in the Australian Bureau of Statistics’ private capital expenditure data.

New spending on equipment and other physical assets dropped 0.6 per cent in the three months to September.

Equipment, plant and machinery capital expenditure fell by 1.6 per cent, with the slowdown following a strong six months of investment.

But buildings and structures expenditure rose a little, increasing by 0.5 per cent.

BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said the upbeat reading suggested the construction sector was still pushing through existing project bottlenecks.

Asked about expenditure plans going forward, Langcake said firms appeared relatively bullish about the next financial year, despite the weakening outlook for growth.

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“In part, this likely reflects an acceptance that cost inflation is entrenched, rather than an expectation that the volume of work to be done will pick up,” he said.

Meanwhile, the festive season will likely throw a lifeline to retailers before cost-of-living pressures and ballooning mortgage repayments catch up with consumers in the new year.

After the Christmas boost wears off, Deloitte Access Economics analysts expect spending to pull back, as is already occurring in the UK and the US.

The author of the retail forecasts report, David Rumbens, said Australia could even enter a mild “retail recession”, with sales volumes anticipated to fall by 0.2 per cent in the March quarter and 0.4 per cent in the June quarter of 2023.

“The result could see the sector entering a short and shallow ‘retail recession’,” Rumbens warned.

While many consumers have been content to eat into their savings rate to fund their spending, this is unlikely to continue long term.

“Consumers will only be happy to dip into their savings for so long – some pullback in spending will need to come,” the report stated.

But despite a few recent cracks in retail spending data, Rumbens said the holiday spending was likely to keep retailers busy for the rest of the year.

Growth in nominal retail sales in the 12 months to December is expected to grow by 10.4 per cent, largely driven by prices as retailers try to maintain their margins by passing on rising costs.

With AAP.