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Manufacturer activity continued to weaken during July, says AIG

18 August, 2008

Manufacturing activity continued to weaken in July, with the Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) recording a reading of 46.9, little changed from the 47.0 points in June.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said, “The continuing weakness of manufacturing activity is not surprising given that the sector, and the economy more generally, is feeling the ongoing impacts of the Reserve Bank’s tightening of monetary policy as well as market based rate rises.

“The July outcome reflects a decline in production, employment and new orders. Inventories were run down significantly, suggesting continuing weaker demand and the potential for further falls in production. This, together with another fall in new orders, indicates that activity will continue to be soft in the near term,” Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said, “The decline in the Australian PMI® for July and the factors which are driving it show that manufacturing profitability is under sustained pressure.

“The pressures flowing from slower market growth, rising input costs and the ongoing strength in the Australian dollar are a mix of both cyclical and long-term factors affecting profit margins. Manufacturers need to make a sustained long-term commitment to managing costs, raising productivity and growing market share to ensure growth through this tight phase of the economic cycle and sustained profitability over the long-term,” Billings said.

Australian PMI® Key Findings for July:

- The Australian PMI® was down 0.1 points to 46.9 in July, continuing the softer trend
seen since the beginning of the year.
- Activity expanded in five sectors in July, compared with two in June.
- The slower domestic economy, higher interest rates and consequent softness in housing
activity are driving the weakness in activity, compounded by weaker global growth, rising
costs and the high Australian dollar.
- Production and unemployment fell again in July, though at a slower rate. New orders
and stocks both fell solidly, putting downward pressure on production.
- Supplier deliveries were stable, exports rose moderately following two months of falls.
- Input costs grew strongly but at a slower rate, while selling prices growth was stable.
- Wages increases accelerated in July after four months of moderate easing in growth.
- Manufacturers cited positive effects on activity from solid infrastructure and mining
related demand, while on the negative side were weaker orders notably relating to
housing construction; raw material costs especially steel, aluminium and petrol; problems
with staff retention and the Western Australia gas disruption.
- Manufacturing activity grew in Western Australia and South Australia but declined in all
other states.