Inconsistency in Manufacturing Outlook or other Fundamentals at Play

1 Dec 11

Australian Bureau of statistics (ABS) data shows strong investment in the manufacturing sector which goes against the generally held opinion that the sector is near death.

ABS survey data released today for the September quarter shows that private fixed capital expenditure, ie investment, in the manufacturing sector, contrary to popular belief, to be strong or almost booming.

The ABS trend series for manufacturing capital expenditure rose nearly 5.8 per cent in the September quarter from the preceding quarter to $3.53 billion, attributed to a 7.7 per cent rise in investment in buildings and structures and a 4.5 per cent rise in investment in plant and machinery. Further supporting this quiet boom notion is that these figures are up more than 19.0 per cent for the same period last year.

Does this mean that conditions in the manufacturing sector are not as bad as being painted by the sector itself?

Not likely the manufacturing sector is still facing the headwinds of the high Australian dollar making manufactured exports less competitive in the global sphere, increased competition from low cost Asia, lack of local content requirements in major Australian projects and uncertaintly with respect to the toxic tax on carbon emissions, adding uncertainty about future production costs.

The trend as seen by the ABS data is more likely to be a case of either shut up shop or become more efficient and more innovative to remain competitive, which requires the investment in new technology to be able to cope with the new landscape of the Australian economy.

From their September minutes the Reserve Bank's liason suggested that the dollar was likely to remain high prompting businesses to re-evaluate their strategies implying that some would close and move offshore, whilst in others it would prompt investment in new capital equipment to remain ahead of the game. The ABS data tends to support the fact that businesses facing a do or die challenge are opting to invest in new technology, despite the lack of government incentives to encourage businesses to invest in new technology, as are present in other leading economy's.

Despite this postive outcome painted by ABS data, it is not likely that we will see an increase in employment in the manufacturing sector anytime soon, the sector continues to shed employees. This renewed investment in newer technology is expected to flow through to productivity gains meaning more from less labour resources.