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Aust PMI®: Manufacturing sector has full quarter of contraction

02 September, 2008

Manufacturing activity remained below the key 50.0 level separating expansion from contraction in August, with the Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) up a marginal 0.1 points to 47.0.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: “Manufacturing is caught in a bind between falling demand and higher input costs.

“The contraction in manufacturing activity for the third consecutive month is very worrying and the case for cutting interest rates is compelling.

“With new orders falling sharply and the price of inputs continuing to rise, the Australian PMI® clearly shows there is increasing pressure on future production,” Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said “The further fall in the Australian PMI® shows that manufacturers remain under pressure. It is unlikely that these market pressures will ease significantly in the short-term, given the prospect of slower economic growth, both here and overseas.

“It is also unlikely that the long-term pressures facing manufacturers due to a higher exchange rate, skills shortages and competitive pressures from the emerging manufacturers such as China will abate significantly either.

“Continued focus on developing new markets and products, developing global supply chains, strengthening competitive edges and cost control are critical for the sector’s ongoing profitability,” Billings said.

Australian PMI® Key Findings for August:

- Manufacturing activity fell for a third consecutive month in August. The Australian PMI® rose 0.1 points in August to 47.0 to remain below the 50 point mark separating expansion from contraction, with tighter financial conditions driving an easing of consumer demand and weaker housing construction, which, in turn, have reduced demand for manufactures.
- Manufacturing is also being buffeted by weaker global growth, rising input costs and the still high Australian dollar.
- Activity expanded in four sectors in August, compared to five in July. Activity fell in eight sectors.
- New orders fell for a fourth consecutive month, putting pressure on future production.  Inventories and supplier deliveries were stable, while exports fell. Production and employment fell again in August, though at a slower rate than in July.
- Input costs grew strongly again in August, while selling price growth accelerated. Wage increases eased in August but remained solid. Capacity utilisation declined moderately.
- Manufacturers again cited positive effects on activity from infrastructure and mining related demand, however key negatives included a weak retail sector; soft housing construction; raw material costs and shortages, especially steel; problems with staff retention; and import competition.

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