Australian Manufacturing Grows at Fastest Rate in 3 Decades Despite Massive Labour Shortages

Construction workers at the Barangaroo development in Sydney, Australia, March 24, 2020.(AAP Image/Joel Carrett)

According to the nation’s peak industry group, Australia’s manufacturing sector delivered its highest monthly growth in almost 30 years.

The Australian Industry Group’s (Ai Group) Australian Performance of Manufacturing Index (pdf) rose by 1.4 points to 63.2 points in June, which is the highest score since the Index began in 1992.

“The 2020-21 financial year closed on a high note for Australia’s manufacturing sector,” Ai Group CEO Innes Willox said in a statement.

The performance was driven by rapid expansion in food and beverages, machinery and equipment, building materials, and chemicals manufacturing, which pushed all four to hit record highs. At the same time, another two measured sectors also grew.

Businesses that directly supplied to the construction industry reported the strongest results and were working to rapidly expand their services to keep up with demand.

“The strength of the recovery continued despite headwinds from COVID outbreaks and associated lockdowns and border restrictions, high freight costs, and the widespread difficulties employers are experiencing in filling positions,” Willox said.

In fact, the manufacturing sector could have expanded at a faster pace if not for the largest labour shortage in 14 years, the Australian Chamber of Commerce and Industry (ACCI) and Westpac revealed in their industry trends survey (pdf).

“Employers are having increasing difficulties finding experienced workers as a result of domestic and international border closures—these labour constraints are at levels not seen since September 2007,” ACCI Chief Economist Ross Lambie said.

“Supply chain disruptions were similarly identified as a major impediment to growth in Australia’s manufacturing output, with material constraints on a scale not seen since the 1970’s oil shock.”

A passer-by looks through a window at a man working on a construction site in Melbourne, Australia, on July 2, 2019. (William West/AFP via Getty Images)

While manufacturers are operating at below full capacity, plans to invest in plant and equipment are at the highest level in five years, as businesses take advantage of low-interest rates and government support.

Respondents also remained positive about their prospects, with around 40 percent expecting both the general economic situation and their own businesses to improve over the next six months.

However, Lambie warns that despite the optimism, “crucial reforms” are required to ensure the sector’s sustainability.

“Businesses need to see a plan for the reopening of international borders in a safe and staged manner to accelerate the resolution of skills and material shortages,” he said. “If we don’t act with urgency now, there is a significant risk Australian manufacturing will struggle to remain competitive against our international counterparts, disrupting our long-term economic recovery.”

Manufacturing is not the only Australian sector struggling with labour shortages. The Australian Bureau of Statistics revealed today that job vacancies across all industries were 57 percent higher than pre-COVID levels.