Shock! Manufacturing back in recession

Pasconomics just keeps delivering for manufacturing:

dfgr

  • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) slipped back into negative territory this month, following a brief stabilisation in July. The index decreased by 3.4 points, to 47.3 points in August (seasonally adjusted), indicating a mild contraction in conditions across the manufacturing sector. The three-month moving average also moved lower in August, to 48.9 points. Readings below 50 points indicate contraction.
  • Many respondents to the Australian PMI® expressed ongoing concern about the persistent strength of the Australian dollar, which has increased import competition and lowered both domestic and overseas demand for locally made products. Manufacturers remain cautious about the outlook and continue to focus on reining in their costs, as they battle very weak trading conditions across most sub-sectors.
  • Among the eight manufacturing sub-sectors in the Australian PMI®, only the large food and beverages (53.8 points) and the smaller wood and paper products (66.3 points) sub-sectors expanded in August. All other sub-sectors contracted, with readings below 50 points.
  • All of the five activity sub-indexes, as well as the sales sub-index, were below 50 points (i.e. signalling contraction) in August, indicating weak conditions across the manufacturing industry. Manufacturing exports improved in August, despite the high dollar. However, this month’s expansion in exports was limited to the food, beverages and tobacco sub-sector and a handful of businesses in other sub-sectors.

Pretty much everything except housing-related lumber is contracting. The internals are insipid:

gher

Full shitty report here.

36 Responses to “ “Shock! Manufacturing back in recession”

  1. 3d1k says:

    Manufacturing decline is a widespread problem for many developed nations, a byproduct of globalisation.

    http://m.nber.org//papers/w20395

    • Opinion8red says:

      Sufficient reason in and of itself to reject the ideology of globalisation.

      • 3d1k says:

        Not at all! Globalised production has many benefits not the least of which is the lift from poverty of millions of citizens in emerging economies that have become the manufacturing powerhouses of the world.

        There is the problem of adjustment for many developed nations, job losses and investment decline.

        Perhaps this is in fact the bringing about of the Great Equality – standards of living for developed nations head down a bit as those of developing nations head up.

      • StatSailor says:

        And most likely the cost of manufactured goods will start to head back up as the Chinese, on the verge of pricing themselves out of low-cost manufacturing, move their production to lower wage cost nations, forcing the price of labour up in those places also.

        Interesting comparison:

        Population of China: ~ 1.35 billion
        Population of Africa: ~ 1.11 billion

      • The Lorax says:

        Does anyone here believe for a nanosecond that 3d1k is concerned about lifting millions from poverty in emerging economies?

        No. 3d1k is here to cheerlead the demise of manufacturing in Australia because it entrenches the power of the mining sector.

      • 3d1k says:

        Is happily see a renaissance of Australian manufacturing – those businesses still successfully manufacturing here are obviously doing something very right. Kudos.

      • StatSailor says:

        Australian manufacturing renaissance quite a bit less likely than say US manufacturing renaissance, as we have gone too far in closing down capacity. Maybe if we’d kept more of it…

        But yes, manufacturing businesses which are still turning a dime have someone pushing them along with dedication and talent, given they are succeeding despite the prevailing economic conditions, rather than because of them.

      • Opinion8red says:

        ” Globalised production has many benefits not the least of which is…”

        Your entire argument hinges on the assumption that the “benefits” you cite could only come about via “globalisation” in the form we see.

        Utter BS.

        F*ck off with your brainless non-arguments. You are nothing more than another predatory, internationalist usurer-enabling parasite.

      • 3d1k says:

        Op8 that’s a little excessive, even for you. Hastily typed on your Australian made device I expect.

      • Opinion8red says:

        3d, on reflection, I apologise for the expletives, but not for the message, or the sentiment.

        Your argument re “benefits” of globalisation is intellectually bereft.

      • China-Bob says:

        @Op8
        I’ll never understand your anti globalization rhetoric

        Lets take a simple example LCD TV’s
        It’s impossible to deny the simple fact that this product created value. It represented the largest singe change in consumer electronics in almost 50 years and brought about a wholesale changeover from CRT to LCD in a period of less then 10 years.

        Some might argue that CRT’s still had some life left in them (ultra thin CRT’s etc) BUT the consumer (even the Indian consumers rejected this product) and instead purchased flat screen TV’s mainly deploying LCD/LED technology. Now if you want to talk about sustainability the modern day LCD TV weighs a fraction of what an equivalent sized CRT would weigh. low weight means less materials means more sustainable.

        OK so what’s this got to do with Australia?: good question because the answer is absolutely nothing as far as I know we havn’t even made a CRT here since the mid 70′s. My point is this value was delivered almost free of change to the Australian consumer because they could piggy back on the globalized change over to LCD technology and the enormous investment that was made to develop this technology.

        you might suggest that Australia could have developed its own LCDTV industry and become a leading global exporter (or just a local supplier) I’d quote my favorite “The Castle” line and tell you “you’re dreamin”

      • Opinion8red says:

        “I’ll never understand your anti globalization rhetoric”

        Then there’s little point in my elaborating, is there.

        IMO, if someone is sincere about discovering for themselves the truth or otherwise of a matter, then it’s necessary to genuinely make an effort to study both the pro- and con- positions. Alas, as I was very disappointed to see inadvertently revealed late in the weekend debate on interest / usury, even the most apparently fair-minded among us don’t actually bother to follow up at all, much less open-mindedly, on references others cite in support of a view contrary to their own. As such, I presently despair of bothering to post links / references here any more.

      • China-Bob says:

        @OP8

        Hmmm Generalized hand waving answers to specific questions.

        Sure things were better in the good old days Rule-Britannia and all that sort of jolly good stuff, transportation to the colonies for stealing bread, daily whippings with the occasional hanging or a good disembowelment for entertainment…I cant imagine why anyone ever invented TV, cars, planes….based on recent reports it looks like IS is trying to redevelop this sort of utopia of yesteryear.

        Personally I could think of hundreds of products that Australia imports where an equivalent product would NEVER have been developed (for Australians) if they didn’t accept the global standard and thereby leverage globalized production. Basically any electronics, most software, most prescription drugs, most medical equipment heck even our mining equipment. It all benefits from globalization because with globalization otherwise fragmented local markets can combine to define products, Its the combined global value of the total available market (TAM) that enables products to be developed (way to difficult to go into here but) for most industries the total product development costs must be the less than 15% of the market value that’s likely to be won. Trust me R&D experts (and VC’s) do this calculation before they fund ANY development. Believe me today If you ignore the global market for your product is dead before it starts.

      • Nudge says:

        3d – Even I can’t swallow that tripe! If your world entailed manufacturing at all, you’d know we’re not ‘heading down a bit’, we’re about to splat at the bottom of a cliff! Possibly ditto for the rest of Oz too.

        Your type of greasing is turning into turps & sandpaper mate – & it Burns!

      • drsmithy says:

        There is an outrageous false dichotomy being peddled here by ideologues that one must either accept globalisation as it exists today – along with all the misery it has caused – as the only alternative to wholly on-shored manufacturing with all the limitations that implies.

        The future looks grimmer everyday.

      • 3d1k says:

        ‘However, as Giesecke (2004), Downes and Stoeckel (2006) and Minifie et al (2013) argue, it would be wrong to conclude that the mining boom is the main source of the manufacturing sector’s troubles. As shown in Figures 16 and 19, manufacturing has been declining as a share of the Australian economy for decades. The mining boom accentuates this trend, but its contribution is small compared to the changes that have come before.’

        http://www.rba.gov.au/publications/rdp/2014/pdf/rdp2014-08.pdf

        Deal with facts and not biases.

      • China-Bob says:

        @drsmithy
        here is an outrageous false dichotomy being peddled here by ideologues that one must either accept globalisation as it exists today

        No body is pushing any false dichotomy, the truth is simply that globalization creates cost advantages and enables value to be extracted from the combining of smaller localized niche markets into one reasonable sized global market. There is absolutely no reason why this must imply a geographic shift of ALL production away from “high labor cost” and towards “low labor cost” nations.

        To be honest you’re the one peddling a false dichotomy, you’re stuck with a 20th century mindset where manual labor costs are a significant portion of manufacturing costs, in today’s factories Capital costs and commissioning costs and skilled operator costs are all typically more important than you’re unskilled labor component.

        If the manufacturing facility is designed to create a myriad of different differentiated products all tailored for specific sectors then this flexibility also has a cost. 3D printing is an example of a highly flexible production facility that can turn out hundreds of different products all tailor made for some application. the real value could be in reduced stocking levels or simply to avoid the price gouging that comes with created manufactured goods monopolies.(for example some plastic door handle widget might cost $500 for a Mercedes Original part BUT an equivalent part can be scanned and produced at the local garage for say $10 using 3D printing technology ) Sure the original part production cost was less then $1 so a $10 3D cost is outrageous until you compare it to the replacement part cost at $500.

        I could go on and on about opportunities in advanced manufacturing but I get the feeling it’d be completely wasted as my English teacher used to say “casting pearls before swine”

      • drsmithy says:

        No body is pushing any false dichotomy, the truth is simply that globalization creates cost advantages and enables value to be extracted from the combining of smaller localized niche markets into one reasonable sized global market. There is absolutely no reason why this must imply a geographic shift of ALL production away from “high labor cost” and towards “low labor cost” nations.

        Well, this post certainly reads that if we didn’t have globalisation in the way it exists today, we’d be stuck back in some sort of primitive society.

        To be honest you’re the one peddling a false dichotomy, you’re stuck with a 20th century mindset where manual labor costs are a significant portion of manufacturing costs, in today’s factories Capital costs and commissioning costs and skilled operator costs are all typically more important than you’re unskilled labor component.

        I’m not quite sure where you get that idea from. As I’ve posted here numerous times, I’m of the opinion that within a generation or two there won’t be any unskilled labor at all thanks to robotics, and probably only another generation after that most skilled labour will follow it thanks to continuing improvements in software development tools and AI.

        I could go on and on about opportunities in advanced manufacturing but I get the feeling it’d be completely wasted as my English teacher used to say “casting pearls before swine”

        It’s not a belief in the opportunities in advanced manufacturing where we differ, it’s what happens when most of humanity becomes redundant and how to deal with the consequences thereof.

      • China-Bob says:

        @drsmithy

        I very rarely quote Keynes but the following seems appropriate especially given that the post labor based manufacturing world that you allude to is still at least 20 years away (i.e. 100 years after Keynes penned the following) so maybe we should simply follow the masters advice and just continue to pretend.

        The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease … But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.

    • The Lorax says:

      Yeah we should be digging dirt with robots. That might employ 10,000 and rest of us can walk each other’s dogs.

    • RobW says:

      It will be interesting to see if globalisation (as we know it) survives the great deleveraging ahead of us.

  2. George says:

    Didn’t you get the memo? The FIRE industry is where it’s at.

  3. Andy! says:

    This result (construction boom, land inflation, fk everything else) is/was the target of RBA action/inaction. What’s the surprise?

  4. 3d1k says:

    Before Richard Denniss comes along and blames mining:

    ‘The boom has contributed to a large appreciation of the Australian dollar that has weighed on other industries exposed to trade, such as manufacturing and agriculture. However, because manufacturing benefits from higher demand for inputs to mining, the deindustrialisation that sometimes accompanies resource booms – the so-called ‘Dutch disease’ – has not been strong.’

    http://www.rba.gov.au/publications/rdp/2014/2014-08.html

  5. boomengineering says:

    3d1k,
    Very good perception, although many of my non mining contributing manufacturing clients have either gone to China or gone broke unable to compete under Aust conditions These used to be the larger proportion of the manufacturing base.

  6. Jim says:

    the continued slow moving train wreck of how a country devours itself from the inside out. Who needs manufacturing when you have such a great FIRE sector? Australia is tactfully transitioning from an economy where it dug stuff out of the ground to sell overseas to selling the stuff on the ground too.

    One must wonder what cock and bull story is fed to foreign investors in Australia’s housing market. No doubt only few investors ask for facts.. but would the conversation go something like..

    Spruiker: ‘Come invest in Australian property, the returns have never been stronger’

    Investor: ‘But what is driving this investment return – I see your unemployment rate rising, your manufacturing sector all but dead with looming unemployment from the closure of the car manufactures and with the build stage of the mining boom over. Your main trading partner China is going through painful adjustment, commodity prices are falling and your housing is the most expensive in the world on a price to rents and price to income basis and your banking sector may go through a repricing of credit through regulatory reforms.’

    Spruiker: ‘Oh but you forget housing only ever goes up in Australia (except for those long periods where it went backwards) and the government is completely in favour of policies which direct further investment into housing. Australia’s population is growing even despite rising unemployment, one of the highest costs of living and a continued shakeout of industries which support low skilled labour. You my investor friend, are the reason to invest in real estate. As long as you keep believing prices will continually rise they will. If I suck enough fools like you into believing my story for long enough, it becomes and remains self perpetuating’.

    • jimbo says:

      Our foreign buyers largely couldn’t give a toss about investment returns, they’re simply rats deserting that sinking miracle ship otherwise known as China.

    • The Patrician says:

      Investor: But as a foreign national can I buy Australian houses?

      Spruiker: Mate absolutely, we can do it now if you want. Couple of forms to sign and bob’s your dad’s brother. Now you have got that Westpac acc don’t you? All we need is $100k now and you can drop the rest in when you get back to Beijing. Good as gold.