Transport suffers with historic manufacturing lows


Signs of a decline in transport demand as manufacturing activity falls to the lowest levels in 16 years

There are further signs of a significant decline in the demand for transport services, with the economic crisis dragging manufacturing activity to the lowest levels in 16 years.

The Australian Industry Group reports a "crisis of confidence" in the economy has seen its Performance of Manufacturing Index fall to 40.4 in October to the lowest recorded level since 1992.

New order figures also hit historic lows in October according to the monthly survey.

Ai Group Chief Executive Heather Ridout says it’s clear the volatility in global financial markets is hitting Australian manufacturing hard.

She says slower economic growth both domestically and overseas is eroding manufacturers’ confidence in the economic outlook.

"The slump in new orders suggests that there is a crisis of confidence arising from a crisis of uncertainty," she says.

"Until this is resolved we won’t be able to ascertain if the downturn in new orders is real or a symptom of extreme caution."

Ridout is calling for further interest rate cuts ahead of the Reserve Bank meeting today.

"While there have been big shifts in fiscal and monetary policies, more will potentially need to be done," she says.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing Graeme Billings says the short-term outlook for manufacturing remains bleak.

"Profitability will remain under pressure over coming quarters as sales and production volumes decline and costs, though now showing signs of easing growth, continue to rise," he says.

BUSINESS CONFIDENCE DOWN
Meanwhile, the latest Commonwealth Bank – ACCI Business Expectations Survey reveals a significant drop in business confidence for the September quarter.

Expected Economic Performance and General Business Conditions indicators fell to their lowest level since the survey began in 1994, while growth indicators such as Sales Revenue, Profits, Employment and investment also declined during the quarter.

The survey shows businesses are also expecting unemployment to increase over the next three months.

Despite weaker growth, the indexes for Wage Growth and Non-Wage Labour Costs indicate cost pressures remain a problem for business.

However the experts are trying to remain positive as selling prices continue to moderate and export sales still expand, albeit only marginally.

"There is no doubt Australian businesses of all sizes are facing the challenges brought about by tighter operating conditions," says Commonwealth Bank Corporate Financial Services Executive General Manager Robert De Luca.

"It is important to note that although confidence has been muted, declines in actual activity such as hiring and capex have not been so severe."

According to Australian Chamber of Commerce and Industry Director of Industry Policy and Economics Greg Evans, this will be buoyed by a moderation of inflation and a further interest rate cut brought about by the recorded weakening in demand.

De Luca says a lower interest rate environment should help to stimulate demand over the coming months and the focus for businesses now should be on "sound cash flow management".

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