Australian business conditions and plans, Jan to June 2021 - June 2021 Ai Group Economics Research
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Australian business
conditions and plans,
Jan to June 2021
June 2021
Ai Group Economics Research
©The Australian Industry Group aigroup. com.au
Australian business
conditions,
Jan to June 2021
©The Australian Industry Group aigroup. com.au
Ai Group’s monthly business activity survey for manufacturing (Aust PMI)
indicates strong recovery across all manufacturing sectors in Q1 and Q2 2021
Manufacturing Ai Group Aust PMI and ABS manufacturing output
8 months of recovery to May 2021. All activity indicators
are positive (above 50 points) except the exports index.
All six manufacturing sectors expanding. machinery &
equipment, building materials, chemicals and TCF, paper
& printing sectors reached record highs in May (trend).
Positive factors reported by respondents: pent-up
demand for business equipment; strong demand from the
construction industry; government stimulus measures
including the instant asset tax depreciation; low interest
rates; and end of financial year sales.
Concerns reported by respondents: high prices for
various metals, raw materials and imported components;
delivery delays for imported and Australian-sourced
materials, inputs and components; high freight prices.
Source: Ai Group
©The Australian Industry Group aigroup. com.au
Ai Group’s monthly business activity survey for construction (Aust PCI)
confirms a house building boom and rising input prices in Q1 and Q2 2021
Ai Group Aust PCI and ABS building activity Ai Group Aust PCI Input Prices
Source: Ai Group-HIA
©The Australian Industry Group aigroup. com.au
Ai Group’s monthly business activity survey for services industries (Aust PSI)
indicates strong recovery across most services industries in Q1 and Q2 2021
Highest monthly result in the Australian PSI® in May Ai Group Aust PSI and ABS domestic final demand
2021 since October 2003. Indicates stronger recovery.
Conducted prior to Vic lockdown at end of May.
Four of the five activity indicators expanded in May.
Inventories were stable (around 50 points).
Four of the five services sectors expanded. ‘Personal &
recreation services’ was stable.
Positive factors for consumer-oriented businesses
include: household savings, confidence, discretionary
spending on local tourism, meals, entertainment.
Business-oriented sectors report stimulus from the
construction sector, tax deductions, better confidence.
Concerns include: availability of various inputs, skilled
staff shortages, particularly for hospitality and regional
areas. Ongoing uncertainty remains a concern.
Source: Ai Group
©The Australian Industry Group aigroup. com.au
In May 2021, 63% of businesses reported positive factors affecting their
business and 31% reported negative factors (prior to Vic lockdown in late May)
Businesses told us customer demand was the single most important factor
affecting their business activity in May 2021, positive or negative.
In May 2021
63%
Of Australian businesses reported
positive factors in May 2021
31%
Reported negative factors in May 2021
6%
Reported neutral impacts in May 2021
Source: Ai Group
©The Australian Industry Group aigroup. com.au
Customer demand is the single most important factor for recovery in business
activity. Improving customer demand is reported by more businesses in 2021.
More businesses report improving customer demand in Businesses emphasise the importance of customer
demand in the recovery of their business activity,
2021 and fewer businesses report weak demand:
March 2020 to May 2021
• around 40% of businesses reported an improvement in
customer demand as the main factor supporting their
business recovery in most months of Q1 and Q2 2021
(44% in Jan and March), up from around 20% in each
month of the second half of 2020 and none in Q2 of
2020 (the low point of COVID-19 recession).
• around 10% of businesses continue to report that
weak or falling customer demand is affecting their
activity in Q2 of 2021 (20% in Feb), down from 40% in
Q4 of 2020 and a peak of 68% in April 2020.
• the remainder report no significant change in demand.
Source: Ai Group
©The Australian Industry Group aigroup. com.auImproving business activity in 2021 is due to 5 key factors: customer demand,
government support, economic certainty, supply reliability, fewer restrictions
For businesses reporting positive conditions in 2021, the Top five positive factors that affect business activity,
top 5 factors impacting their business were: March 2020 to May 2021
1. Increasing customer demand (reached a peak of 44% of
all comments in March 2021)
2. Government support measures (e.g. JobKeeper,
HomeBuilder, instant asset write-off tax deductions).
Business reports about these measures peaked at 26%
of all comments in July & August 2020 but it remains
an important factor for many businesses in Q2 2021.
3. Increased certainty in the outlook. This peaked at 23%
of all comments in October 2020 as more businesses
felt the pandemic had ‘turned a corner’.
4. Supply chain improvements (mentioned in 7% of
positive comments in Q2)
5. Easing activity restrictions (mentioned in 7% of positive
comments)
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn May 2021, 63% of businesses reported positive factors including customer
demand, government support, certainty, supply reliability, fewer restrictions
63% businesses reported positive conditions in May Positive business conditions:
2021. The top five factors impacting their business were: top five factors, May 2021
1. Increasing customer demand (noted in 67% of
positive comments and 42% of all comments)
2. Effects of government support (e.g. HomeBuilder,
mentioned in 11% of positive comments)
3. Increased certainty (noted in 9% of positive
comments)
4. Supply chain improvements (mentioned in 7% of
positive comments)
5. Easing activity restrictions (mentioned in 7% of
positive comments)
Source: Ai Group
©The Australian Industry Group aigroup. com.auPockets of weaker business activity in 2021 are due to 5 key factors: customer
demand, activity restrictions, supply disruptions, uncertainty, rising costs
For businesses reporting negative conditions in 2021, the Top five negative factors that affect business activity,
top 5 factors impacting their business activity were: March 2020 to May 2021
1. Reduced customer demand (reached a trough of 68%
of all comments in April 2020)
2. Effects of activity restrictions most pressing factor
at 33% of all comments in September 2020
3. Supply disruption (noted in 15% of all comments in
October 2020)
4. Uncertainty had the largest impact in March 2020
(mentioned in 7% of all comments)
5. Increased costs was a persistent inhibitor on
business activity (mentioned in 7% of comments in
May)
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn May 2021, 31% of businesses reported negative factors including customer
demand, supply disruptions, price rises, staff shortages, government support
Negative business conditions:
31% of businesses reported negative conditions in May top five factors, May 2021
2021. The top five factors impacting their business were:
1. Falling customer demand (noted in 36% of negative
comments and 11% of all comments)
2. Supply chain disruptions, ongoing or worsening (29%
of negative comments)
3. Input price increases (22% of negative comments)
4. Staff shortages (14% of negative comments)
5. End of government support and stimulus measures
(14% of negative comments)
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn May 2021, 27% of businesses reported staff shortages (38% in hospitality)
due to: lack of suitable applicants, border closures, location, uncertainty
Employing businesses reporting difficulty finding Factors affecting ability to find suitable staff, May
suitable staff (% of employing businesses), May 2021 2021 (% of businesses reporting difficulty)
Source:ABS, Business Conditions and Sentiments, May 2021
©The Australian Industry Group aigroup. com.auIn Q2 2021, reports of staff shortages have risen strongly in regional locations
(mainly from regional hospitality businesses seeking low to medium skills)
Online job vacancies in regional locations, Businesses reporting difficulty find suitable staff, to
(000s per month), to May 2021 May 2021 (% of businesses that are recruiting)
Sources: National Skills Commission, Internet Vacancy Index, May 2021; National Skills Commission, Recruitment Difficulty Survey, May 2021
©The Australian Industry Group aigroup. com.auWhat are business people saying about business conditions in Q2 of 2021?
POSITIVE comments about business conditions Q2 2021 NEGATIVE comments about business conditions Q2 2021
• Business confidence has improved, customers are very positive and • Shortages of raw materials last month and panic buying this month to
looking ahead optimistically. try and avoid future increases; timber in desperately short supply.
• Large increase in orders from multiple market sectors • Supplier shortage issues due to global demand including shipping
availability, transit times & increased costs.
• Return to more normal pre-COVID settings [is] resulting in increased
consumer confidence. • Main factors affecting sales have been delays in receiving materials
from suppliers, particularly from overseas. This affects both raw
• The way Covid has been reduced in Australia and introduction of Covid
materials and finished product.
vaccine.
• Not enough employees to take on extra work available. Losing
• The end of Covid and the lack of work last year. Pent up demand.
employees to mining industry.
• The availability of low-cost finance is empowering buyers. Hence
• Input costs increasing across all areas of our manufacturing. [we] will
demand has increased and stock is becoming scarce. Home grants.
see inflationary price increase start to occur in the region of 5 - 10%
• Mouse plague [is] causing damage to customer equipment [that] we
service which increased our service jobs/revenue. • Continued weakness in bricks and mortar retail. retailers have
mentioned that customer spending has dropped recently
• Slow return of business and property transaction activity to pre-
• Uncertain global travel and business climate
pandemic levels.
• Price fluctuations and staff capacity to keep up with demand. Ability to
• Backlog of orders no longer on hold (due to COVID) as customers go
quote with future price increases factored in has slowed the process
ahead.
• Initial improvement now marked by contraction in work opportunities.
• Unprecedented amount of export orders
lack of demand now that Government stimulus has ended
• Customers want to buy local instead of imported product
©The Australian Industry Group aigroup. com.auAustralian
business plans
and responses,
Jan to June 2021
©The Australian Industry Group aigroup. com.auIn 2021, business plans are focussed on employment, investment, suppliers.
In 2020, business plans focussed on working from home and later technology.
Business planning priorities in 2020: Changes to business plans, March 2020 to May 2021
1. working from home was the most common initial
response to the pandemic, implemented by a peak of
55% of businesses in March 2020.
2. increasing use of technology was the main focus of
business plans in Q4 of 2020, peaking at 54% of
respondents in November 2020.
Business planning priorities in 2021:
1. changes to employee hours and/or number of
employees was a key plan in 2021, reversing the
reductions in employment and work hours in 2020.
2. investment intentions picked up sharply from Feb
2021, possibly in response to the Fed Budget
investment tax supports (announced in Oct 2020).
3. Changing or diversifying input suppliers became a
priority for 21% of businesses by May 2021.
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn 2021, business plans are focussed on restoring and growing employment.
In 2020, up to half of all business plans included reductions in employment.
Employment planning priorities in 2020: Planned changes to employment, March 2020 to May
2021
• In April 2020, a peak of 48% of businesses planned to
reduce their employee hours and/or numbers.
Employment planning priorities in 2021:
• In Q1 and Q2, the proportion of businesses planning
to increase employee work hours and/or numbers has
climbed steadily each month.
• by May 2021, 44% of businesses plan to increase
employee hours and/or numbers.
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn May 2021: 30% of all businesses plan to increase their employment and 28%
plan to increase their investment levels over the next 3 to 6 months
Business planning priorities for the next 3 to 6 months, Business planning priorities
May 2021: for the next 3 to 6 months, May 2021
30% of all businesses plan to increase employment levels
and/or hours. Businesses experiencing positive conditions
(23%) will do this to meet growing demand. Businesses
experiencing negative conditions (7%) want more staff in
order to restore their capacity or improve their efficiency.
28% of businesses plan to increase their new investment.
21% are boosting investment due to positive conditions but
7% are doing it in response to negative conditions.
19% of businesses plan no changes because their business
is going well or they want to ‘wait and see’.
14% of businesses say that changing or diversifying their
suppliers is their main planning priority.
7% of businesses plan to focus on ‘business development’
(e.g. new markets, products or production).
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn May 2021: among businesses reporting positive conditions, 36% plan to
increase employment and 33% plan to increase their investment spending
Top 5 plans for the next 3 to 6 months by businesses
Planned changes over the next 3 to 6 months,
reporting positive trends in May 2021: businesses reporting positive conditions, May 2021
1. Increase employee hours and/or the number of
employees (36% of positive comments)
2. Increase investment spending (33% of positive
comments)
3. No changes to planning yet, wait and see (21% of
positive comments)
4. Find new suppliers and/or new customers (10% of
positive comments)
5. Improve business efficiencies (9% of positive
comments).
Source: Ai Group
©The Australian Industry Group aigroup. com.auIn May 2021: among businesses reporting negative conditions, 26% plan to
diversify their supply chains and 24% plan to increase investment spending
Planned changes over the next 3 to 6 months,
Top 5 plans for the next 3 to 6 months by businesses
reporting negative trends in May 2021: businesses reporting negative conditions, May 2021
1. Find new suppliers and/or customers due to supply
disruption or customer disruption (26% of negative
comments)
2. Increase investment in order to increase sales or
capacity (24% of negative comments)
3. Increase employee hours and/or number of
employees in order to increase sales or capacity (22%
of negative comments)
4. No changes just yet, wait and see (19% of negative
comments)
5. Improve business efficiencies including cost
reductions, rationalisation or product diversification
(11% of negative comments)
Source: Ai Group
©The Australian Industry Group aigroup. com.auWhat do businesses say about their plans for the next 3 to 6 months in Q2 2021?
Business comments about plans for the next 3 to 6 months, Q2 2021 • Supply is a huge concern for us in the coming months . We try to
• Expect staff hours to increase in the workshop over the next 3 to 6 purchase as much as we can from Australian companies, but they
are unable to deliver within acceptable time frames as they are
months. Investment in some new vehicles and critical equipment
struggling to get raw materials as well as parts. Our purchasing
• Already spent $3m on new equipment. Focus on productivity and costs are increasing for most purchases. We purchase some small
efficiency improvements. New products planned. parts and a couple of products from overseas, these have gone up
• Training now to implement another shift by June. in price by an average 20% and the cost of getting them to us has
doubled in the past 12 months.
• We are bringing some specialty work back in house and looking at
outsourcing more work that we consider standard work that we • Looking to engage another employee on permanent basis
are not geared up to do efficiently. (currently just recruited on a casual basis), cease work at home
and have office staff in office 5 days per week (currently 1 day
• Evaluate and implement process changes to improve productivity
work at home) also considering sourcing material from countries
to keep pace with increased volumes. Additional machinery and
other than China
staff
• Supplier review with the ongoing COVID delays in supply.
• We have just completed setting up a workshop to start producing
more products in Australia. Having difficulty finding new staff and • New business. Some changes to suppliers.
currently have positions vacant. • Always looking for improvements in supply chain (terms, best
• Additional machinery and staff value, speed and reliability of delivery etc.)
• More staff, new positions, more resources to cater for our growth. • At this stage I anticipate no changes at all till we know exactly
We have invested heavily into R&D as well as robotics and we are what is happening with COVID-19.
investing more in training.
©The Australian Industry Group aigroup. com.auBusiness investment in 2021. Factors affecting business investment decisions
include: customer demand, funding, uncertainty, tax incentives, supply disruptions
Factors influencing business investment plans, Factors influencing business investment plans,
May 2021 (ABS data) Nov 2020 to May 2021 (ABS data)
Source ABS, Business conditions and sentiments, May 2021
©The Australian Industry Group aigroup. com.auBusiness investment in 2022. Treasury expects a recovery in business
investment due to extended tax supports (full expensing and loss carry-backs).
NON-MINING BUSINESS INVESTMENT took a big hit in 2020, Non-mining business investment expectations
but it did not fall by as much as initially feared.
Government tax support for business investment aims to boost
and bring forward investment spending. It is worth an estimated
$20.7 billion over the next four years. It includes:
• Full expensing of asset purchases was introduced in 2020 and
extended to 30 June 2023 (as recommended by Ai Group).
This will apply to eligible equipment and machinery purchases
(with no maximum cap per item) by businesses with turnover
up to $5bn between 6 Oct 2020 and 30 June 2023.
• The tax loss carry-back arrangements for businesses with
turnover up to $5bn are extended to 30 June 2023. This allows
tax losses incurred in each year since 2019-20 to be offset
against previously taxed profits back to 2018-19.
Treasury estimates these tax measures “will create 60,000 jobs
by the end of 2022-23” and “boost GDP by $2.5bn in 2020-21, Note: Shaded area is the forecast period
Source: Commonwealth Treasury
$7.5bn in 2021-22 and $8bn in 2022-23”.
©The Australian Industry Group aigroup. com.auQuestions, more information or a quick update?
Latest insights
Ai Group Economics Weekly (on web or via email to members)
Australian economic update, Q2 2021
Australian business issues in 2021: supply chain disruptions
Federal budget 2021-22: key measures for business
Monthly reports on industry activity
• Australian Performance of Manufacturing Index
• Australian Performance of Construction Index
• Australian Performance of Services Index
Website: www.aigroup.com.au/resourcecentre/economics
E-mail: economics@aigroup.com.au
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