Prices and Inflation
In the March quarter, 46% of manufacturers reported higher input costs. This is the highest since 2008. Labour and materials have been outlined as the biggest constraints to output at the highest rate since 1974 (due to the 1974 oil shock). Business profitability is being eroded by these higher reported costs. Currently, 44% of manufacturers expect costs to rise further in the coming period.
Profit margins are being squeezed as manufacturers are only partially passing on higher costs to customers. Only 19% of manufacturers reported increasing their selling prices, which is substantially lowing than the 46% of manufacturers that reported higher input costs. Currently, 26% of manufacturers believe they will raise selling costs as input cost pressures continue.
Labour Market
A net 7% of firms have increased employment in the quarter, up from a -1% result in the previous quarter. This is interesting, as all expectations predicted much higher employment outcomes than either of these two results. This is said to be caused by labour shortages, exacerbated by COVID. Currently, 31% of firms intend to increase employment in the next quarter.
With employment increases being constrained in conjunction with rising output, this has influenced overtime outcomes. A net 25% of firms increased overtime in the current quarter. While 26.3% of manufacturers believe it is harder to find labour.
Investment and Profitability
Investment intentions are beginning to rise, but not yet reaching the level reached at the beginning of 2021. A net 12% of firms are looking to increase plant and equipment investments, down from the 27% at the beginning of 2021.
Building projections for the year show respondents are planning a net decrease in building by 1%. Indicating the need for firms to rein in excess capacity.
In terms of profit expectations, only 5% of manufacturers are expecting higher profits in the future, this is compared to the long-run average of 20%. The low profit expectations are evidence of higher input costs and supply issues squeezing profitability.
Activity and Orders
Output reduced in the second half of 2021 due to delta. However, in Q1 16% of respondents have increased output. Expectations of output in future periods remain high as 26% of firms expect output to increase in the coming quarter.
Exports fell by 8% in the March quarter. This marks three consecutive quarters of export reductions. This is caused by factors such as shipping availability, freight costs and inconsistent export demand. Currently, a net 6% of respondents surveyed expect exports to increase in the next quarter.
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