The Manufacturing Activity Index was largely unchanged in Q3 – with positive trends for business confidence offset by negative ones for labour and purchase costs and final product prices. The index implies a slight increase quarterly manufacturing activity – at around +0.4%. However purchase costs (also dollar related) are likely to push the index lower over the next six months.

• NAB’s Manufacturing Activity Index remained positive in Q3 2013, at +0.3 points. This level was largely unchanged from the previous quarter, and is considerably stronger than the levels that were evident in 2012. The index implies that the manufacturing sector recorded some modest quarterly growth, increasing by around +0.4%.
• In recent times, the index has trended through a volatile growth cycle in Manufacturing Gross Value Added (GVA). The gap between our index and reported GVA in June was at its narrowest since early 2012. The performance of the Activity Index compares favourably with other measures – particularly the Performance of Manufacturing Index – which has pointed to contractions in the sector across the past eighteen months (see charts on page 2).
• Business confidence was the only positive influence on the Activity Index in Q3 – rising to +2 points (from -4 points in June). Confidence in the Manufacturing space may have been boosted by declines in the Australian dollar – reducing some of the competitive pressures on the industry. The largest increases in confidence were recorded in Machinery & Equipment, Food products and Printing, while there were sharp declines in Textiles, Clothing & Footwear and Non-metallic minerals.
• Final product prices was one of the key components tempering the positive influence of confidence on the Activity Index – down to -0.1% (from +0.1% previously). The negative trend was most evident in Food products, Chemicals and Machinery & Equipment, while Non-metallic minerals and Printing saw stronger trends.
• Negative trends in Purchase Costs also offset gains from Business Confidence – with Purchase Costs up to +0.2% (from +0.1% in our last report). The upturn in purchase costs was driven by stronger trends in Chemicals, Metal products and Printing, while Non-metallic minerals and TCF exhibited softer trends. Purchase costs are a lagged measure in our index, and recent data points to a sharp spike in Q3 – coinciding with the decline in the dollar, which increased the costs of imported inputs. This will likely push the Activity Index lower over the next six months.
• Labour cost trends were also negative – however this component had the smallest impact on the Manufacturing Activity Index. Costs increased sharply in Wood products and Metal products, while trends were softer in Printing, and TCF.
• While there was minimal change in the overall Manufacturing Activity Index, there were some significant changes at the subsector level. The gap between the strongest and weakest subsector Activity Indices narrowed considerably – down to its lowest level since the September quarter of 2011 – reflecting a decline in (strong performing) Chemicals and a large improvement in (weaker) Printing.

For further analysis download the full report.

• NAB Manufacturing Activity Index – Q3, 2013 (PDF 111 KB)