NAB launches Manufacturing Activity Index to provide detailed analysis of sector

16 November, 2011

National Australia Bank (NAB) today launched the inaugural NAB Manufacturing Activity Index (MAI) which provides detailed analysis of activity in Australia’s manufacturing sector.

The Index has been constructed to replicate quarterly movements in activity in the manufacturing sector. It comprises weighted components of business confidence and profits (in turn based on weighted movements in output and input prices) using data from NAB Quarterly Business Survey (QBS) over the past 10 years.

Richard Coath, Head of Industrials, NAB commented that the MAI provides a comprehensive snapshot of conditions and confidence for individual sectors in Australia’s manufacturing sector.

“Manufacturing continues to be an important contributor to the Australian economy. Structural change has been underway in the manufacturing industry over many years and while the pace of that change has intensified with the current economic environment the important thing is that businesses need access to good quality, timely information to support their decision making.

“The MAI provides key insights on the issues facing the sector and a level of detail that will support manufacturing businesses to make informed decisions regarding business strategy and investment spend in response to emerging challenges and opportunities.\

“While conditions remain challenging, NAB continues to believe there is a strong future for the manufacturing sector, particularly those businesses that are innovative, flexible and adapt to change,” Mr Coath said.

Alan Oster, NAB Chief Economist, said the MAI provides robust analysis on the manufacturing sector with a significant level of detail on individual sub-sectors.

At a high level, the disparity between individual sub-sectors narrowed a little in the September quarter – as the Activity Indices for all sectors (excluding Textiles, Clothing and Footwear) deteriorated – reflecting a large fall in previously strong (but volatile) performer Printing and a modest decline in lower ranked Wood products.

“The multi-speed economy has been commented on a lot recently and the manufacturing sector is no different – there is disparity within individual sectors in the manufacturing sector.

“In our experience, businesses that continue to innovate, embed themselves into customer supply chains, invest in research and development, engineering and design and align their manufacturing capacity to meet demand are best positioned in a challenging environment,” Mr Coath said.

The Index found that purchase costs in the manufacturing sector have trended steadily higher since early 2010. Manufacturers reported a slowing in purchase cost growth in Q3, which will provide a boost to the index in coming quarters.

By industry, Chemicals and Metal products have seen considerable increases in purchase costs since the start of the year. In contrast, growth in purchase costs softened for Non-metallic minerals.

Labour Costs in manufacturing moved higher in the early part of 2011 – outpacing the trends in the broader economy – with this factor largely offsetting positive trends in final price growth in our Activity Index.

Wage pressures have eased marginally over the past two quarters – however remain at high levels relative to the post-GFC period.

At a sub industry level, Wood products saw the largest increase (however trends in this sector have been highly volatile recently), while Printing and Non-metallic minerals saw some degree of sofening.

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Elisha Vincent
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