NAB Manufacturing Activity Index – Q4, 2013

The Manufacturing Activity Index continued with its slow improvement in Q4, supported by strong business confidence and falling labour costs. The index implies activity in the manufacturing industry expanded by 0.5% in Q4.

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The Manufacturing Activity Index continued with its slow improvement in Q4, supported by strong business confidence and falling labour costs. The index implies activity in the manufacturing industry expanded by 0.5% in Q4.

  • NAB’s Manufacturing Activity Index continued to rise for the sixth consecutive quarter, reaching +0.4 points in Q4 up from +0.3 in Q3 2013. A strong improvement in Business Confidence, also evident in the Quarterly NAB Business Surveys, led the gain, helped by falling Labour Costs. On the other hand, Rising Purchase Costs and falling Final Product Prices have been slowing down the improvement in manufacturing activity.
  • The NAB Manufacturing Activity Index implies a +0.5% quarterly growth in the ABS Industry Gross Value Added (GVA) series in Q4 2013. The ABS series has been more volatile than the Activity Index since the GFC however in the past year started to converge towards the Activity Index which shows a slow improvement in the manufacturing industry.
  • The performance of the Manufacturing Activity Index compares favourably with other measures of manufacturing performance. In particular, the Activity Index has recorded a closer relationship to GVA than the Performance of Manufacturing Index (PMI) – which has pointed to contractions in the sector over the past two years but has started to converge to neutral levels.
  • Among the four components,
    – Business Confidence rose strongly in Q4, to +10 points from +3 points previously, contributing the most to the rise in the Activity Index.
    – Lower Labour Costs in December also contributed to the rise in the Activity Index.
    – Purchase Costs rose slightly in December, offsetting the positive impacts from higher Business Confidence and lower Labour Costs. It is worth noting a sharp increase is expected in Purchase Costs over the next six months, putting large downward pressure on the Activity Index.
    – Finally, the downstream Final Product Prices index also fell across most industries, but the downward trend is expected to be reversed in the coming months.
  • While most subsectors continued to improve slowly, TCF and Wood Products Activity Index fell significantly in Q4, to be the two worst performing subsectors. Non-metallic minerals caught up with Chemicals to be the strongest performers.
  • The extent of the rebound in manufacturing activity follows a period of pronounced weakness and seems inconsistent with talks of further ongoing retrenchments in the sector. It is worth noting the survey was conducted prior to the announcement of the Toyota closure which is likely to impact confidence, albeit after Ford and Holden announced their exits. Therefore it will be important to see whether this rebound will be maintained in the coming months.

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