The AIG manufacturing PMI is out for January and, shock, remains in contraction, though there’s hope from the falling dollar:
The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) increased by 2.1 points to 49.0 points in January (seasonally adjusted). This indicated broadly stable conditions across the manufacturing sector this month (readings below 50 points indicate contraction, with the distance from 50 indicating the strength of the contraction).
The Australian PMI® typically ‘leads’ ABS data for manufacturing output by around 3 months. Recent results from the Australian PMI® suggest manufacturing output (measured as ‘value added’ by the ABS) is likely to be broadly flat in Q4 2014 and so far in 2015.
Three of the seven activity sub-indexes of the Australian PMI® were above 50 points in January. Manufacturing exports expanded for a second month in January. Supplier deliveries and stock levels returned to expansion this month following a contraction in December 2014. Although the new orders and production sub-indexes improved in January, they both remained below 50 points (i.e. contraction). Manufacturing sales contracted for an eighth consecutive month, while manufacturing employment contracted again after a brief expansion late in 2014.
Three of the eight manufacturing sub-sectors in the Australian PMI® expanded (i.e. above 50 points) in January. The large food and beverages sub-sector continued to expand, while the relatively small textiles, clothing and furniture sub-sector, and non-metallic mineral products (mainly building materials) both expanded for a third consecutive month.
Respondents to the Australian PMI® indicated the further depreciation in the Australian dollar has boosted export volumes over recent months. However, the lower dollar has also increased prices for imported inputs and businesses still report intense import competition. The sharp drop in mining investment, the progressive closure of automotive assembly in Australia, and weak business investment more generally, are also discouraging demand for locally made machinery and components.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
