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8221.0 - Manufacturing Industry, Australia, 2006-07 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 26/08/2008  Final
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EXPLANATORY NOTES


INTRODUCTION

1 This publication, Manufacturing Industry, Australia, 2006-07 (cat. no. 8221.0), presents data of the economic and financial performance of the manufacturing industry.

2 Manufacturing, as specified in Division C of the 2006 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC) (cat. no. 1292.0), relates to the physical or chemical transformation of materials, substances or components into new products (except agriculture and construction). The materials, substances or components transformed by units in this division are raw materials that are products of agriculture, foresty, fishing and mining, or products of other manufacturing units.

3 This publication represents the first release of these estimates using the 2006 edition of ANZSIC. Because of the combined effect of this new classification and methodological changes, a new series has commenced with the 2006-07 data. See Technical Note 1 for further details.


STATISTICAL UNITS USED

4 Statistical units are those entities from which statistics are collected, or about which statistics are compiled. In ABS economic statistics, the statistical unit is generally the business. All businesses in the EAS are recorded on the ABS Business Register (ABSBR).

5 The ABS uses an economic statistics units model on the ABSBR to describe the characteristics of businesses, and the structural relationships between related businesses. Within large and diverse business groups, the units model is used also to define reporting units that can provide data to the ABS at suitable levels of detail.

6 This units model allocates businesses to one of two sub-populations:

  • Most businesses and organisations in Australia need to obtain an Australian Business Number (ABN). The vast majority of these businesses are simple in structure and are allocated to the population which is maintained by the ATO. These are termed (by the ABS) ABN units.
  • The remaining businesses are in the ABS maintained population, and are termed type of activity units, or TAUs.

7 Together, these two sub-populations (of ABN units and TAUs) make up the ABSBR population, from which the EAS samples are taken.

8 For details about the ABSBR and how ABN units and TAUs contribute to the industry statistics in this publication, see Technical Note 1.


SCOPE

9 The manufacturing industry collection was conducted as a component of the ABS's Economic Activity Survey (EAS). The scope of the 2006-07 manufacturing collection comprises all businesses (including non-employing businesses) on the ABS Business Register (ABSBR) at time of selection, whose industry is classified to ANZSIC Division C Manufacturing. However, some categories of business are excluded. The ABSBR includes information supplied from the Australian Taxation Office (ATO) which assists in determining the scope of ABS collections. Using this, businesses in the following two categories have been excluded from the scope of this collection with effect from 2006-07 (although they were included in previous years):
  • businesses which have an Income Tax Instalment Provision (ITIP) taxation 'role' but no other taxation role;
  • long term non-remitters of Business Activity Statement (BAS) data.

10 For details of the structure of this division, please consult the 2006 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC) (cat. no. 1292.0), which is also available through the ABS web site <http://www.abs.gov.au> (using the Home page Search facility to find Division C).


COVERAGE

11 The frame used for the survey of the manufacturing industry, like most ABS economic surveys, was taken from the ABSBR. The ABSBR is updated monthly to take account of new businesses and businesses which have ceased operating.

12 The ANZSIC-based industry statistics presented in this publication are compiled differently from activity statistics. Each ABN unit or TAU on the ABSBR has been classified (by the ATO and the ABS respectively) to a single industry irrespective of any diversity of activities undertaken. The industry class allocated is the one which relates to those activities that provide the main source of income. A manufacturing industry business is one predominantly engaged in manufacturing activities, but the data collected for it cover all activities of the business (including any non-manufacturing activities). Conversely, there are some businesses predominantly engaged in non-manufacturing activities which also undertake limited manufacturing activities; these are excluded from the collection.

13 Some manufacturing businesses engage, to a significant extent, in activities which are normally carried out by different industries. For example, a predominantly manufacturing business may also undertake significant amounts of wholesaling. Similarly, a manufacturing business may produce significant volumes of goods which are normally produced in different manufacturing industries. However, where a business makes a significant economic contribution to industries classified to different ANZSIC subdivisions, the ABS includes the business in the ABS maintained population, and 'splits' the TAU's reported data between the industries involved. Significance is determined using total income.

14 A TAU's reported data will be split if the inclusion of data relating to the secondary activity in the statistics for the industry of the primary activity distorts (by overstating or understating) either the primary or secondary industry statistics at the ANZSIC subdivision level by:
  • 3% or more, where the industries of the primary and secondary activities are in the same ANZSIC division
  • 2% or more, where the industries of the primary and secondary activities are in different ANZSIC divisions.

15 Unincorporated joint ventures (UJVs) within the manufacturing industry are arrangements which allow the sharing of expertise, resources and risk associated with specific projects. This occurs through the participation of a number of organisations (by investment) in a specific operation. Some of these organisations may not otherwise be involved in that industry.

16 The manufacturing collection includes such businesses which are operators and/or participants in UJVs. Generally, each participant supplies data of its share of income, while the operator reports all expenses and employment.

17 The ABS attempts to maintain a current understanding of the structure of the large, complex and diverse business groups that form the ABS maintained population on the ABSBR, through direct contact with those businesses. Resultant changes in their structures on the ABSBR can affect:
  • the availability of such businesses (or units within them) for inclusion in the annual economic collections
  • the delineation of the units, within those groups, for which data are to be reported.

18 The ABS attempts to obtain data for those businesses which ceased operation during the year, but it is not possible to obtain data for all of them.


IMPROVEMENTS TO COVERAGE

19 Data in this publication have been adjusted to allow for lags in processing new businesses to the ABSBR. The effect of these adjustments is an increase of 1.4% on the Australian estimate of sales and service income for total Manufacturing.


ANZSIC93 AND ANZSIC06

20 The estimates in this publication are based on ANZSIC06. Data in previous issues were based on the 1993 version of the ANZSIC (ANZSIC93). ANZSIC06 was adopted to provide a more contemporary industrial classification system, taking into account issues such as changes in the structure and composition of the economy, changing user demands and compatibility with international classification standards.

21 There has been an increase from nine Manufacturing subdivisions under ANZSIC93 to fifteen under ANZSIC06, whereas the number of industry classes within the division has decreased marginally.

22 As a result of these changes, some businesses, classified to ANZSIC93 Division C Manufacturing are not classified to Division C Manufacturing under ANZSIC06. Similarly some businesses which were not classified to ANZSIC93 Division C Manufacturing are now classified to ANZSIC06 Division C Manufacturing. Changes include units primarily engaged in publishing or the combined activity of publishing and printing now classified under Division J Information Media and Teleommunications and units mainly engaged in repairing and/or maintaining equipment and machinery now classified under the Repair and maintenance subdivision within Division S Other Services. For further details, see Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0).


HISTORICAL COMPARISONS

23 To provide comparability with the 2006-07 estimates, the estimates for 2004-05 and 2005-06 presented in table 1.1 take into account the various changes in collection design, estimation methodology and scope, as well as the introduction of ANZSIC06. Although systems were primarily designed to produce estimates at industry subdivision level for the key data variables contained in table 1.1, additional information may be available on request. For further information on the process of producing these historical estimates please see Technical Note 1 paragraph 22.


SURVEY SAMPLE DESIGN

24 The manufacturing collection was conducted as a component of the ABS's Economic Activity Survey (EAS):

25 A sample of 6,368 manufacturing businesses were asked by the ABS to provide employment details and data obtained from their financial statements, mainly via mail out questionnaires. Businesses were also asked to supply key details of their operations by state and territory, enabling the production of the state/territory estimates contained in table 3.1.

26 Auxiliary information about wages and salaries and turnover for 96,066 manufacturing industry businesses (including those sampled), sourced from Australian Tax Office (ATO) Business Activity Statement (BAS) data, were used to improve the estimates produced from the survey data. Section 16(4)(ga) of the Income Tax Assessment Act 1936 provides for the ATO to pass information to the Australian Statistician for the purposes of the Census and Statistics Act 1905.


REFERENCE PERIOD

27 The period covered by the collection is, in general, the 12 months ended 30 June. Where businesses are unable to supply information on this basis, an accounting period for which data can be provided is used for data other than that relating to employment. Such businesses make a substantial contribution to some of the estimates presented in this publication. As a result, the estimates can reflect trading conditions that prevailed in periods outside the twelve months ended June in the relevant year.

28 Although financial data estimates relate to the full twelve months, employment estimates relate to the last pay period ending in June of the given year. As such, any estimates of wages and salaries per person employed can be affected by any fluctuations in employment during the reference period.

29 Financial data presented incorporate all units in scope of the manufacturing collection that were at the production stage at any time during the year. They also include any temporarily inactive units, i.e. those units which were in the development stage or which were not in production, but which still existed and held assets and liabilities and/or incurred some non-operating expenses (e.g. depreciation, administration costs).


RELIABILITY OF ESTIMATES

30 In an estimate based on a sample survey there are two types of error possible: sampling error and non-sampling error.

31 Sampling error occurs because a sample, rather than the entire population, is surveyed. One measure of the likely difference resulting from not including all businesses in the survey is given by the standard error. There are about two chances in three that a sample estimate will differ by less than one standard error from the figure that would have been obtained if all businesses had been included in the survey, and about nineteen chances in twenty that the difference will be less than two standard errors. Standard errors for the current estimates of key variables are shown in Technical Note 2.

32 Non-sampling error arises from inaccuracies in collecting, recording and processing the data. The most significant of these errors are: misreporting of data items; deficiencies in coverage; non-response; and processing errors. Every effort is made to minimise reporting error by the careful design of questionnaires and efficient data processing procedures.

33 For more detailed information about this subject, see Technical Note 2.


QUALITY INDICATORS

34 In the 2006-07 survey of the manufacturing industry, there was a 93.1% response rate from all businesses that were surveyed and found to be operating during the reference period. Data were imputed for the remaining 6.9% of operating businesses. This imputation contributed 5.2% to the estimate of sales and service income for the manufacturing industry.


INDUSTRY PERFORMANCE MEASURES

35 Differences in accounting policy and practices across businesses and industries can lead to some inconsistencies in the data input to the statistics. Although much of the accounting process is subject to standards, there is still a great deal of flexibility left to managers and accountants in the accounting policy and practices they adopt. For example, the way profit is measured is affected by management policy on such issues as depreciation rates, bad debt provisions and write off, and goodwill write off. The varying degree to which businesses consolidate their accounts may also affect any industry performance measures calculated.

36 A range of performance measures, usually expressed as ratios, can be produced from the data available from businesses' financial statements. Others, relating to labour inputs, can be derived by expressing financial or economic variables on a per person employed basis. This issue presents a selection of such measures. They comprise:
  • profitability ratios, which measure the rate of profit on sales
  • debt ratios, which indicate the ability of businesses to meet the cost of debt financing
  • labour measures, which relate output, labour costs and employment
  • capital expenditure ratios, which indicate the extent of business investment in capital assets.

37 A further explanation of each ratio can be found in the Glossary.

38 Those ratios compiled from a combination of flow (whole period) and level (beginning or end of period) items need to be treated with additional caution. Ratios which include both level and flow items in their derivation may be volatile due to the timing and other differences involved. In particular, this should be taken into account when considering those measures expressed as values per person employed.

39 Similarly, the extent of change in inventories is a component of several of the measures of industry output and earnings. Although the closing inventories held by businesses in an industry in one period should, in concept, equate to its opening inventories in the next period, differences will be observed in many cases. These differences can arise from re-selection of the sample between years and/or changes in the structure of businesses selected, as well as revaluations of inventories in businesses' accounts.

40 The above limitations are not meant to imply that analysis based on these data should be avoided, only that they should be borne in mind when interpreting the data presented in this publication.


INTERNATIONAL FINANCIAL REPORTING STANDARDS

41 The new Australian equivalents to International Financial Reporting Standards (AIFRS) began to be progressively implemented in Australia from 1 January 2005. As a result, a number of items in the financial accounts of Australian businesses have been affected by changed definitions, which have in turn affected both Income Statements and Balance Sheets. A range of ABS economic collections source data from financial accounts of businesses, and use those data to derive economic statistics. There have been no changes in the associated economic definitions.

42 After monitoring data items since March quarter 2005 it has been concluded that most affected published data series have been affected by data breaks, but that the magnitude of such breaks cannot be determined without imposing disproportionate load upon data providers to ABS surveys and other administratively collected data. ABS will continue to monitor developments and report any significant identified impacts or changes in methodology as a result of AIFRS.


STATE AND TERRITORY ESTIMATES

43 State and territory summary estimates for manufacturing subdivisions are presented in table 3.1. To enable the production of these estimates, businesses included in the mail out survey were asked to report data for employment, wages and salaries, and sales of goods and services, for each state and/or territory in which they operated, if more than one. For more detail see paragraph 19 of Technical Note 1. The relevant data for all other businesses, including those whose contribution was sourced from BAS data, were allocated to their state/territory of operations as recorded on the ABSBR.


EMPLOYMENT SIZE DATA

44 The treatment of unincorporated joint ventures (UJVs) under the ABS economic statistics model has an effect on data classified by employment size. This is because each of the joint venture participants reports details of its share of the sales of goods and services, but generally they have few or no employees or operating expenses. The labour for such operations is usually employed and paid for by the joint venture operator. Similarly, the operating expenses are usually reported by the joint venture operator. The number of UJVs in manufacturing industry is small, and at the aggregate level all activity is covered in the statistics.

45 However, this treatment does affect the employment size tables 2.3 and 4.1, as UJV participants with potentially significant sales of goods and services are included in the 0-4 persons category. These effects are particularly evident in the estimates for the Primary metal and metal product manufacturing industry.


EXPORTS BY MANUFACTURERS

46 All businesses which received an ABS mail out survey were asked whether they exported and, if so, what percentage of their sales of goods produced was exported by the business or by an agent on its behalf. Because the ATO data do not contain this information, businesses whose contribution to manufacturing estimates was sourced from BAS data do not contribute to the export tables included in this publication. The effect of the exclusion of these businesses is likely to be minimal, in view of their small contribution to overall estimates.

47 The data presented in table 4.1 are derived by applying the percentage of exports reported for each exporting unit and then aggregating that figure. These data also exclude any contribution by those businesses which operated during 2006-07, but were not operating at 30 June 2007.

48 For the purposes of table 4.2, manufacturing businesses have been categorised by the extent (if any) of their involvement in exporting. For each such category, the tables present its share (relative to total Australian manufacturing) of the four key data items: employment at end of June, sales and service income, wages and salaries, and industry value added.

49 The statistics presented in table 4.1, relating to the value of exports by manufacturers or their agents, are not intended to be directly comparable with the value of exports classified by manufacturing industry of origin as published by the ABS in international trade statistics. These latter statistics are intended to measure total exports regardless of which business or organisation does the exporting (and to identify the probable industry from which the goods originated), whereas the statistics in this publication's tables only relate to exports directly undertaken by the manufacturer or by its agent. The exports data in table 4.1 can, therefore, be expected to show a much lower value than the exports data from the international trade series. The main reason is that for many exports of goods manufactured in Australia, the actual exporting activity is undertaken by a business other than the manufacturer.

50 Also, the value of goods produced on a commission or fee basis for non-manufacturing businesses and which are then exported is not included in any of these data. Examples of relevant commission arrangements are the slaughtering fee charged by an abattoir for processing livestock owned by a meat exporter, and the tolling fee charged by an aluminium smelter to process ores owned by other (e.g. mining) businesses. Also excluded from these tables are any exports by manufacturers of goods which were not produced by that manufacturer. These and other goods exported (e.g. re-exports) are included in the international trade data. Finally, differences in valuation of exports arise because the value of exports in the international trade series would include the value to the manufacturer plus profit margins for the exporter and for any intermediaries between the manufacturer and the exporter.


ACKNOWLEDGEMENT

51 ABS publications draw extensively on information provided freely by individuals, businesses, governments and other organisations. Their continued cooperation is very much appreciated: without it, the wide range of statistics published by the ABS would not be available. Information received by the ABS is treated in strict confidence as required by the Census and Statistics Act 1905.


RELATED PUBLICATIONS

52 The ABS produces industry estimates for a range of selected industries (including manufacturing) and these results will be available in Australian Industry, 2006-07 (cat. no. 8155.0), scheduled to be released in September 2008. National estimates of income, output, expenditure and associated ratios will be available at the ANZSIC division level (with a greater range of data available via the ABS web site in spreadsheet form).

53 For a list of publications and electronic releases that present data about the manufacturing industry using ANZSIC93, please refer to the 2005-06 edition of this publication.

54 Current publications and other products released by the ABS are available from the Statistics View on the ABS web site. The ABS also issues a daily Release Advice on the web site which details products to be released in the week ahead.


ABS DATA AVAILABLE ON REQUEST

55 As well as the statistics included in this and related publications, the ABS may have other relevant data available on request and for a charge. Inquiries should be made to the National Information and Referral Service on 1300 135 070.


BACK SERIES AND ADDITIONAL DATA

56 The ABS has data stored electronically from earlier manufacturing surveys collected using different statistical infrastructures. For relevant data, see the data cubes and spreadsheets released in conjunction with the 1999-2000, 2000-01 and 2005-06 issues of this publication. The publication text also provides useful descriptions of these changed collection arrangements. These publications and datasets are all available on the ABS web site.

57 By definition, these data series are not directly comparable with the current statistical series.

58 For more information, please contact Phillip Lui on (02) 9268 4269.


ROUNDING

59 Where figures have been rounded, discrepancies may occur between totals and the sums of the component items. Due to data being adjusted for lags in processing new businesses to the ABS Business Register (see paragraph 19), this 'rounding rule' also applies to employment estimates.

60 Proportions, ratios and other calculated figures shown in this publication have been calculated using unrounded estimates and may be different from, but are more accurate than, calculations based on the rounded estimates.


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