Activity across the manufacturing industry contracted for a fifth month in April, although the pace of contraction eased. The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) moved up by 1.8 points to 48.0 points this month (readings below 50 points indicate contraction) (seasonally adjusted). This followed a brief stabilisation in manufacturing conditions in November 2014.
The Australian PMI® typically ‘leads’ ABS data for manufacturing output by around 3 months. Recent results from the Australian PMI® suggest output in manufacturing (measured as ‘value added’ by the ABS) is likely to have shrunk again in the first four months of 2015.
All of the seven activity sub-indexes in the Australian PMI® were below 50 points this month. Manufacturing exports contracted in April after four months of expansion, mainly due to a decline in food and beverages exports this month (previously the strongest sector). The benefits of the lower dollar continue to flow through elsewhere however, with the machinery and equipment sub-sector recording a fourth consecutive month of expansion in exports.
Other activity indicators indicated very weak local demand. Manufacturing sales declined for an 11th month in April, while new orders fell for a fifth month. Manufacturing production contracted for a sixth consecutive month. Supplier deliveries and stock levels contracted for a third month in April, while manufacturing employment declined for a fourth month.
Four of the eight manufacturing sub-sectors in the Australian PMI® expanded (i.e. above 50 points) in April: food and beverages (for an 11th month); non-metallic mineral products (mainly building materials, for a sixth month); wood and paper; and printing and recorded media. This was the same group of growing sub-sectors that was recorded in March.
Despite the benefits from stronger residential construction activity, very low interest rates, and a lower Australian dollar, weak local demand continues to weigh heavily on manufacturing. Respondents cited demand problems arising from the ongoing drop in mining construction, the progressive closure of automotive assembly, subdued local business investment in equipment, as well as prolonged economic and political uncertainties. The lower Australian dollar had been providing support for exports (rising until now) but it is also increasing prices for imported inputs.
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.
