It’s our monthly update of the manufacturing perma-recession from the AIG today and it does not disappoint:
The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell by 3.6 points to 45.4 points in February (seasonally adjusted). This indicated a third month of contraction in conditions (readings below 50 points indicate contraction) across the manufacturing sector following a brief stabilisation in November 2014.
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.
Manufacturing exports expanded for a third consecutive month in February, following further falls in the dollar. Much of this growth was concentrated in the food and beverages sub-sector.
Among the other activity indicators however, manufacturing production contracted (i.e. below 50 points) for the fourth consecutive month while new orders declined for a third month. Manufacturing sales contracted for a ninth month in February. Supplier deliveries and stock levels also returned to contraction this month following a brief expansion in January, while manufacturing employment contracted for a second month.
Three of the eight manufacturing sub-sectors in the Australian PMI® expanded (i.e. above 50 points) in February. The large food and beverages sub-sector expand for a ninth month, while the relatively small textiles, clothing and furniture sub-sector, and non-metallic mineral products (mainly building materials) both expanded for a fourth consecutive month.
The lower Australian dollar and its further depreciation since September 2014 have boosted manufacturing export volumes over recent months. However, the lower dollar has also increased prices for imported inputs, which has put further downward pressure on manufacturers’ margins. Despite the pickup in residential building over the past year, the sharp drop in mining construction, the progressive closure of automotive assembly, and weak local business investment, are weighing on 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.
