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Manufacturing continues to weaken although decline eases

03 July, 2009

Manufacturing activity continued to weaken throughout June although the pace of decline eased slightly.

The seasonally adjusted Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) rose by 0.9 points to 38.4, remaining below the 50.0 level separating expansion from contraction. While activity has now contracted for 13 consecutive months, the Australian PMI® in June was 7.1 points above last year’s lowest reading in November 2008.

Four of the twelve sectors (machinery & equipment; textiles; basic metal products; and fabricated metal products) reported an easing in declines, with two sectors (food & beverages and clothing & footwear) recording increases in activity in June, reflecting the boost provided by the Government’s second stimulus package and lower interest rates. The weakness continued in new orders while employment, deliveries and inventories all declined at a slower pace.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: "Clearly the Government’s stimulus, the lower interest rates and strengthening confidence have benefited some sectors, including food processing and clothing and footwear which saw a return to growth in June, and four other sectors which have reported easing in declines. While the slowing in declines in manufacturing inventories, employment and deliveries is encouraging, the continued weakness in new orders and production raises doubts as to whether this trend will be sustained.

"There will need to be an improvement across all sectors in the months ahead, particularly automotive, transport and construction industries which reported weakness and impeded manufacturing production in June," Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said: "The weakness in manufacturers’ markets illustrated by continued declines in new orders puts further pressure on profit margins as prices continue to fall at the same time as input prices and wages growth remain stable. This only re-emphasises the need for firms to continue to focus on ensuring cash flow through such strategies as reducing unit costs through inventory and supply chain management and managing debtors and creditors effectively," Billings said.

Australian PMI® Key Findings for June:

- The seasonally adjusted Australian Industry Group-PricewaterhouseCoopers Australian PMI® rose by 0.9 points to 38.4, remaining below the 50.0 level separating expansion from contraction.

- Seasonally adjusted, the production sub-index fell by 3.5 points to 37.9. Despite the slippage, the sub-index remains 10.8 points above the low point of November 2008.
Capacity utilisation improved marginally on the record low of 66.9% recorded in May, lifting to 67.4%.

- In seasonally adjusted terms, the new orders sub-index fell by 2.8 points to 36.6, reflecting ongoing weak demand for manufactured goods.

- The rate of decline in employment eased further, with the sub-index rising 3.3 points to 39.0.

- Manufacturing inventories were run-down further in June, albeit at a slower rate, with the seasonally adjusted sub-index rising from a historically low reading of 31.9 in May, by 7.6 points to 39.5.

- In seasonally adjusted terms, the rate of decline in supplier deliveries slowed further with the sub-index up 7.9 points to 41.3.

- Manufacturing activity fell in all states, although the pace of decline eased in New South Wales, Victoria and Queensland.

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