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Manufacturing slips back into contraction

08 January, 2015

An indication of another contraction in conditions across the manufacturing sector, the Ai Group Australian Performance of Manufacturing Index (Australian PMI) fell by 3.2 points to 46.9 in December.

Only two of the seven activity sub-indexes – those for employment (up 4.7 points to 52.5) and exports (up 2.9 points to 51.0) – were above 50 points in December. (readings below 50 indicate a contraction in activity, with the distance from 50 indicative of the strength of the decrease.)

The new orders sub-index fell sharply (down 10.6 points to 43.7) following two months of mild expansion, reflecting slower growth or a decline in new orders across the manufacturing sub-sectors.

Manufacturing production also contracted for a second month (down 1.4 points to 46.0). Reflecting the weak trading conditions, supplier deliveries (down 3.5 points 48.5) and stocks (almost unchanged at 45.4) also contracted in December.

Expanding sectors

As in November, four of the eight manufacturing sub-sectors expanded in December. The large food, beverages and tobacco sub-sector continued to expand (up 1.3 points to 60.4), as did the smaller wood and paper products sub-sector – but at a much slower rate, dropping 10.5 points to 51.1. The textiles, clothing and furniture (up 4.2 points to 58.6) and non-metallic mineral products (up 12.4 points to 62.6) sub-sectors also expanded for a second consecutive month.

Business sentiment "weak"

"We would have hoped to have seen a stronger Australian PMI in the lead-up to Christmas, but the finding is consistent with other publicly released data," Ai Group Chief Executive, Innes Willox, said.

"Respondents to the Australian PMI welcomed the further depreciation in the Australian dollar, but noted that the level of the dollar continues to encourage strong import competition.

"Business sentiment and appetite for investment remain weak.

"The closure of Australian automotive assembly facilities now underway, plus the rapid decline in mining investment activity, are also weighing heavily on demand for locally made machinery inputs and components."

Australian PMI: Key Findings for December

  • The Australian PMI fell 3.2 points to 46.9 in December, indicating a contraction in conditions across the manufacturing sector this month.
  • Four of the eight manufacturing sub-sectors expanded in December: food, beverages and tobacco (up 1.3 points to 60.4); wood and paper products (down 10.5 points to 51.1); textiles, clothing and furniture (up 4.2 points to 58.6); and non-metallic mineral products (up 12.4 points to 62.6), which mainly produces building materials and has benefitted from the recent improvement in residential building activity.
  • The machinery and equipment (down 1.7 points to 42.9); petroleum, coal, chemicals and rubber products (up 3.0 points to 42.9); printing and recorded media (down 2.6 points to 40.1) and metal products (down 2.3 points to 40.9) sub-sectors all continued to contract this month.
  • Two of the seven activity sub-indexes – employment (up 4.7 points to 52.5) and exports (up 2.9 points to 51.0) – were above 50 points in December, but the new orders (down 10.6 points to 43.7), stocks (unchanged at 45.4), and supplier deliveries (down 3.5 points to 48.5) sub-indexes all contracted.
  • In the face of rising input costs (steady at 70.3 points), selling prices contracted at a faster speed in December (down 3.9 points to 45.1) and continue to place significant pressure on manufacturers' margins. The wages sub-index was almost unchanged at 53.7 points.

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