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Manufacturing activity hits 3-year high

New home sales reach decade high; Skills shortage
Purchasing managers’ indexes; New home sales; COVID-19 business survey

Purchasing managers’ indexes (PMI): The IHS Markit ‘flash’ PMI for manufacturing rose from 55.8 to a 36-month high of 56.0 in December. The services PMI lifted from 55.1 to 5-month highs of 57.4. The composite PMI rose from 54.9 to a 5-month high of 57.0. Readings above 50 indicate an expansion in activity.

New detached home sales: In seasonally adjusted terms, private new detached home sales rose by 15.2 per cent in November to reach a decade high of 7,054 units. Sales were up 6.3 per cent over the three months to November. In the nine months since COVID-19 restrictions came into effect in March, sales are 19.6 per cent higher than at the same time last year.

Business survey: The Australian Bureau of Statistics (ABS) has released the Business Impacts of COVID-19 survey for December. According to the survey, “One in five (21 per cent) employing businesses reported they were having difficulty finding suitably skilled or qualified staff for jobs. Businesses reported having difficulty finding suitably skilled tradespersons, hospitality workers and STEM professionals. Other in demand jobs included labourers, drivers and managers.”

The ‘flash’ purchasing manager’s index gives a guide to conditions in manufacturing and services sectors. The home sales data has implications for banks, retailers, developers, building and building material companies. The business survey provides key insights into how the COVID-19 crisis has affected the broader business sector.

What does it all mean?

• Purchasing managers’ indexes provide a timely update on conditions and activity in both the manufacturing and services sectors. Preliminary readings in December show that the Aussie economic recovery is gathering momentum. In fact, the easing of Covid-19 restrictions – with the removal of state and territory border controls – has boosted business confidence, improved conditions and lifted activity. While overall job creation was still moderate, private sector companies increased employment for a second successive month in December. Importantly, IHS Market economists reported, “Business confidence improved at the end of 2020, with the overall degree of optimism reaching its highest since August 2018.”

• Aussie manufacturers lifted production into year-end with growth in new orders the strongest in over two years. Importantly, IHS Market reported that factory employment “expanded at the fastest rate in just under three years.”

• Of course, the pandemic recession has been services-led due to widespread shutdowns of consumer-facing private sector businesses. But Australia’s ‘growth engine’ is getting back on its feet after Victoria and South Australia emerged from their second lockdowns. In its services sector survey, IHS Markit economists said, “Firms enjoyed the strongest rise in new work in 41 months and responded to this by continuing with their hiring efforts.”

• With the jobless rate at 7 per cent nationally in October (latest reading), it is hard to believe that Aussie businesses are experiencing a skills shortage. But the Bureau of Statistics (ABS) today revealed that, “One in five (21 per cent) businesses reported that they were having difficulty finding suitably skilled or qualified staff.” In its December business survey, ABS statisticians also reported, “Almost one in six (15 per cent) employing businesses reported that, based on current operations, they did not have a sufficient number of employees.”

• So what professions are in demand? “Businesses reported having difficulty finding suitably skilled tradespersons, hospitality workers and STEM professionals,” the ABS said. “Other in demand jobs included labourers, drivers and managers.”

• The housing market is going gangbusters. Home prices are lifting, auction activity is robust, demand for home loans is surging and new home sales have hit decade highs. The Housing Industry Association (HIA) today reported, “HomeBuilder is not the only reason for the strength in new home sales, although it was the trigger for improved market confidence. Low interest rates, house price growth and a change in consumer preferences away from apartment style living, have all seen demand for detached housing rise. Many households have diverted their expenditure from travel and entertainment towards housing, including renovating their home. The strength of new home sales is a positive sign that home building will support the broader economy as we enter 2021.”

What do the figures show?

‘Flash’ IHS Markit Purchasing Managers’ Indexes (PMI) – December

• The IHS Markit ‘flash’ PMI for manufacturing rose from 55.8 to a 36-month high of 56.0 in December. The services PMI lifted from 55.1 to 5-month highs of 57.4. The composite PMI rose from 54.9 to a 5-month high of 57.0. Readings above 50 indicate an expansion in activity.

• According to IHS Markit economists, “Not only was the Australian economic recovery sustained in December, but growth also gathered momentum as the loosening of COVID-19 restrictions underpinned further improvements in demand for goods and services. As such, private sector output expanded at the quickest pace in five months. The preliminary PMI results also brought good news regarding employment. Both goods producers and service providers continued to hire extra staff, the former to the greatest extent in close to three years. News of vaccine development and hopes that COVID-19 worries will fade underpinned upbeat growth projections towards the year-ahead outlook for business activity. Private sector companies were at their most optimistic in over two years. One area that failed to improve was exports, with stricter lockdown measures in some nations, border controls and travel restrictions continuing to restrict external demand for Australian goods and services. The latest fall in international sales was the eleventh in successive months.”

New home sales – November

• In seasonally adjusted terms, private new detached home sales rose by 15.2 per cent in November to a decade high of 7,054 units. Sales were up 6.3 per cent over the three months to November. In the nine months since COVID-19 restrictions came into effect in March, sales are 19.6 per cent higher than at the same time last year.

• The Housing Industry Association (HIA) reported, “Across the country, new home sales in the three months to November 2020 were higher in all regions when compared with the same period in 2019: Western Australia (+108.8 per cent), South Australia (+57.6 per cent), Queensland (+34.0 per cent), Victoria (+22.2 per cent) and New South Wales (+20.7 per cent).”

• HIA said, “This month’s sample captures 19 per cent of Australia’s new detached home building sector.”

• No data was published by the HIA for multi-unit sales.

Business Impacts of COVID-19 Survey – December

• The Bureau of Statistics’ (ABS) survey of approximately 2,000 businesses (63 per cent response rate) was conducted between December 2 and December 9, 2020.

• Key findings

“In December, 25 per cent of businesses reported increased revenue over the last month.

One in five (21 per cent) employing businesses reported they were having difficulty finding suitably skilled staff.

Two thirds (65 per cent) of medium and large employing businesses plan to employ staff over the next three months.”

• Changes in revenue

“From July through to November the proportion of businesses reporting a decrease in revenue fell each month. Between November and December, the proportion of businesses reporting a decrease remained stable (22 per cent compared to 20 per cent). Similarly, the proportion of businesses reporting an increase in revenue in December (25 per cent) was comparable to November (24 per cent).

Sentiments related to monthly revenue expectations have weakened, with over a quarter (27 per cent) of businesses expecting a decrease in revenue over the next month from December, compared to 10 per cent in November. A number of businesses commented that they expect revenue to decrease due to planned closures over the festive period.

• Positive monthly revenue expectations were reported by one in five businesses (22 per cent). These sentiments were predominant in industries where December seasonal factors are expected to influence such as Retail trade (40 per cent) and Arts and recreation services (36 per cent).”

• Changes in number of employees

• “One in ten (11 per cent) businesses reported an increase in the number of employees in December.

• Medium businesses were three times as likely as small businesses to report an increase in the number of employees (30 per cent compared to 10 per cent).”

• Skills shortages

• “Almost one in six (15 per cent) employing businesses reported that, based on current operations, they do not have a sufficient number of employees.

• Medium employing businesses (23 per cent) were more likely than small (15 per cent) and large businesses (12 per cent) to report they do not have sufficient employees.

• One in five (21 per cent) employing businesses reported they were having difficulty finding suitably skilled or qualified staff for jobs.

• Medium businesses (41 per cent) were more likely to report they were having difficulty finding suitable staff for jobs, compared to small (19 per cent) and large (29 per cent) businesses.

• Businesses in Accommodation and food services (33 per cent) and Other services (33 per cent) were the most likely to report they had jobs they were having difficulty finding staff for, while businesses in Retail trade (7 per cent) were the least likely.

• Two thirds (65 per cent) of medium and large employing businesses plan to employ new staff over the next three months and around half of medium (49 per cent) and large (52 per cent) businesses expect to re-train or upskill existing staff to fill skills gaps.”

What is the importance of the economic data?

• IHS Markit undertakes a survey of purchasing managers across manufacturing and services sectors. The ‘flash’ or ‘early/preliminary’ readings provide timely information on the economy. As such, the survey is valuable for investors.

• The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 homebuilders. The survey covers around 15 per cent of the home building industry.

• The Bureau of Statistics is conducting regular surveys like Business Impacts of COVID-19 to show the impact of COVID-19 on the economy. The data is important in gauging the impact on individual businesses and business sectors.

What are the implications for investors?

• The all-important labour force survey is issued tomorrow. Commonwealth Bank (CBA) Group economists expect 50,000 jobs to be added or reinstated in November with the unemployment rate easing from 7 per cent to 6.7 per cent.

• Leading indicators of jobs growth – advertisements, vacancies and business surveys – are all pointing to a recovery in labour market conditions. In fact, skills shortages are emerging across a broad range of industries. While the number of unemployed Australians remains elevated, advertised job skills mismatches – between workers and employers – could present an obstacle to the employment recovery. Already the number of suitable global candidates has ebbed with international border closures crimping labour mobility.

• ACA Research’s COVID-19 Business Sentiment Tracker of SME’s on November 22, 2020 highlighted that 84 per cent of SME’s that are hiring are finding it difficult to fill roles. And 61 per cent of SMEs reported that, “not enough candidates are applying” with 51 per cent suggesting that there is a “lack of skilled/qualified candidates”.

Important Information

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Published by Ryan Felsman, Senior Economist, CommSec