Labour shortages, high costs hitting manufacturing hard

Workforce shortages continue to plague manufacturing businesses, even as the slowing economy and the influx of migrants take the edge off the competitive labour market.

The monthly business survey by Westpac and the Australian Chamber of Commerce and Industry released on Tuesday revealed ongoing tightness in the labour market.

Slightly more than half of the survey respondents said manufacturing workers were hard to find in the June quarter, up from 44.6 per cent in the March quarter, but down from the high of 67.5 per cent in the 2022 September quarter.

Firms struggled to add workers over the June quarter largely because of difficulties sourcing labour, with a net one per cent of firms reporting an uplift in employment over the quarter.

A slowdown in new orders also likely put a handbrake on new hiring, with a net one per cent of respondents reporting a decline in the June quarter.

In the March quarter, new orders lifted by 15 per cent, with growth as soft as pandemic levels.

Westpac chief economist Bill Evans said conditions in the manufacturing sector were flatlining, with the composite index falling to 50.7 in the June quarter from 53.9 in the three months to March.

“The fading of earlier tailwinds and rising interest rates are contributing to a downbeat outlook for demand, while labour shortages and cost pressures persist,” he said.

The report pointed to persistent cost pressures on manufacturers, with 67 per cent of firms reporting a rise in average unit costs.

This was down from 70 per cent in the March quarter, which was among the highest readings since 1982.

Firms are passing on higher costs to consumers, but not enough to stop margins from shrinking, respondents reported.

“Businesses report that the economic outlook remains bleak, as interest rates continue to rise, high inflation reduces real household incomes, and margins are squeezed,” Mr Evans said.

He said conditions were likely to deteriorate.

Consumers have been stuck in the doldrums, with the ANZ and Roy Morgan index recording its 17th week in a row below 80 index points.

However, the weekly index lifted 2.5 points last week, led by a jump in the “current financial conditions” measure.

Poppy Johnston
(Australian Associated Press)