Experts weigh in on industrial shortages that had not been seen since the 1970s
Employers, specifically manufacturers, have recently reported facing labour and material shortages due to global supply chain disruptions. Now, they are preparing for worse conditions in the following months.
With shortages on a scale that “had not been seen since the 1970s oil shock,” the Australian Chamber of Commerce and Industry (ACCI) recently showed its Westpac Survey of Industrial Trends for the March quarter, saying that “while output improved early in 2022 as the economy reopened, the pace of recovery is being constrained by significant headwinds with manufacturers’ profitability deteriorating, squeezed by rapidly rising costs.”
In a media release, Westpac senior economist Andrew Hanlan told ACCI that business conditions in the manufacturing sector showed moderate improvement when 2022 began as COVID-19 restrictions eased.
“The results of the ACCI-Westpac survey indicate that manufacturing output, having stalled over the second half of last year hit by the delta lockdowns, moved into a moderate expansion in the March quarter. Consumers have embraced fewer restrictions, spending more freely, providing a boost to manufacturers. Government spending is up strongly, another plus for the sector,” Hanlan said.
Hanlan also attributed the “rise in activity” with more workers being employed at a “modest” rate. “The Westpac-ACCI Actual Composite Index lifted into expansionary territory in the March quarter, printing at 56.7, up from the flat outcome in the December quarter, a reading of 50.8. Output expanded as new orders posted a moderate increase, with a net 14 percent of respondents reporting that orders were up. This rise in activity was largely facilitated by working additional overtime, as well as a modest increase in employment numbers.”
With an upward trend in the manufacturing side, a labour and materials shortage still seems to be an “intensifying” concern. “Despite the more positive results around manufacturing activity, the survey again highlights that manufacturers face considerable pressures from rapidly rising costs and a shortage of labour and materials. These pressures intensified further in early 2022,” Hanlan said.
“Manufacturers’ ability to increase production is being constrained by labour and material shortages, the survey reports, pressures that are the most acute since 1974. The unemployment rate has fallen to historically low levels, on rising demand and the closure, until recently, of the national border.”
Meanwhile, ACCI chief executive Andrew McKellar commented on the “volatility” experienced by the global economy, especially with the recent developments in the Russia-Ukraine conflict.
“International supply chain bottlenecks are producing material constraints on a scale not seen in almost 50 years. With the costs of inputs increasing at a much faster rate than prices, the Russian invasion of Ukraine and soaring commodity prices will undoubtedly lead to further pressure on manufacturers who are already being squeezed,” McKellar said.
“With the Russian invasion of Ukraine and corresponding surge in commodity prices, further diversification of supply chains will be critical to ensuring businesses can source key components of production,” McKellar added.
McKellar further pointed out the “acute skills crunch” that has affected the labour force due to border closures and pandemic disruptions. “Workforce shortages also continue to hamper the growth in Australian manufacturing output with labour constraints at their highest level since 1974. Although businesses are taking on new hires, these have fallen considerably short of hiring intentions, representing the increasing acute skills crunch as border closures and pandemic disruptions continue to bite,” he said in ACCI’s media release.
Support from the federal government remains crucial at this time, with McKellar saying that manufacturers’ investment intentions “experienced a slight uptick while business sentiment remains solidly positive.”
“It’s critical that the Federal Budget continues to support measures such as the instant asset write-off to create jobs and grow the economy,” he said.
