NAB says manufacturing has strong future, but new index shows low confidence amid multi-speed economy

National Australia Bank says manufacturers face a strong future, particularly those that adapt to change and innovate, as its new quarterly manufacturing index reveals a fall in activity – driven by a fall in business confidence – and continued marked differences between sub-sectors.

The inaugural NAB Manufacturing Index, released this morning, shows that activity indices for all sectors excluding textiles, clothing and footwear deteriorated over the September quarter.

The index also found that business confidence in the sector fell to -11 points in the third quarter, after broadly neutral levels the previous quarter.

“When compared with other industries, manufacturing records below average levels of confidence,” the bank says.

“Ongoing uncertainty in the global economy, the weak state of domestic demand and continued competitive pressures due to the high currency has led to subdued sentiment in the manufacturing sector.”

The report finds that purchase costs for the sector have trended steadily higher since early 2010 – contributing significantly to the decline in the activity index this quarter.

The report also notes that although the disparity between sub-sectors narrowed through the September quarter, the sector was no different from the broader economy, which is experiencing a multi-speed economy.

The index notes that growth in labour costs were tempered in the three months to September 30.

The index, designed to replicate quarterly movements in activity in the manufacturing sector, comprises weighted components of business confidence and profit, using data from the NAB quarterly business survey over the past decade.