Manufacturing sentiment plummets amid wage rises and high dollar

Concerns over staffing costs and the high Australian dollar are taking their toll on local manufacturers, with a new report showing industry sentiment has taken a significant dip.

According to Dun & Bradstreet’s National Business Expectations Survey for June, half of non-durables manufacturers expect the high dollar to have a negative impact on their business in the September quarter.

This is up from a third in May. Meanwhile, 37% expect wages growth to have the biggest effect on operations, up 7%.

This has prompted industry executives to downgrade sales and profit projections, with sales expectations among non-durables manufacturers falling 16 index points to an index of 20, and profit projections falling two points to an index of nine.

Durables manufacturers are similarly pessimistic about sales (down 18 points to one point), and profits (down 16 points to -1) for the coming months.

Dun & Bradstreet director Adam Siddique says the decision to raise the national minimum wage is impacting sentiment among already-struggling manufacturers.

“Together with pressure from the consistently high Australian dollar, wages pressure is impacting on executives’ outlook,” Siddique says.

“As a consequence, businesses will be less willing to focus on long-term growth, including staff investment.”

Concern over staffing costs and the dollar is also contributing to a conservative outlook among retailers, with two-thirds expecting slowing demand to affect operations in the year ahead.

As with manufacturers, 30% of retail executives expect wages growth to have the biggest impact on operations in the coming quarter, up from 20% in May.

More than a third expect the elevated exchange rate to have a negative impact on business.

Industry expectations prompted a profit downgrade among retailers, moving further into negative territory from -1 points to -9, as plans for employment, inventories and selling prices were also downgraded.

“Australian consumers’ conservative attitude is impacting retailers, who are attempting widespread discounting in order to shift stagnant stock,” Siddique says.

D&B’s latest consumer survey found more than half of consumers are less willing to spend money on non-essentials compared with 12 months ago, while willingness to save grows.

“This has a noticeable knock-on effect to the consumer-driven industries at each point in the supply chain,” Siddique says.

“As conditions remain difficult, businesses will need to refocus on the fundamentals of good cashflow management in order to survive.”

Overall, sales expectations across all firms fell to the lowest level in 12 quarters, down 11 index points to nine, while profit projections fell from six index points to two.

Likewise, employment, capital investment, inventories and selling price expectations have fallen compared with the June quarter.