Manufacturing tanks

The adjustment we all had to have is going gangbusters now. Having been in recession for the better part of a year, manufacturing activity fell off a cliff in July. Here’s what the mild-mannered folk at the Australian Industry Group had to say about the ongoing extinction of their members:

■ Manufacturing activity slumped in July with the seasonally adjusted Australian Industry Group-PwC Australian PMI® declining 9.5 points to 43.4, reinforcing the very tough trading conditions the industry is experiencing (readings below 50 indicate a contraction in activity).
■ The decline in manufacturing activity reflected contractions across the wood products and furniture; clothing and footwear; food and beverages; basic metals; and fabricated metals sub-sectors.
■ Most survey respondents remain cautious about the outlook for the manufacturing sector citing reduced domestic demand, the strong Australian dollar, increased overseas competition, high interest rates and uncertainty surrounding proposed carbon pricing as factors inhibiting the manufacturing sector.
■ Wages and input costs continued rising in July, while the decline
in selling prices persisted, suggesting that manufacturing profit margins continued to narrow.
■ Manufacturing activity remained soft across most states

Bugger me, Dutch disease and stagflation! No wonder new orders fall even further than the headline index, showing further weakness ahead.

Let’s take a look at the sub-sectors:

Clothing and footware managed a slightly less hysterical rush for the exit. Paper, printing and publishing lobbed back into growth, no doubt on the back of all those chest-beating articles celebrating the rise of the dollar. And miscellaneous is powering.

Everything else tanked.

Houses and Holes
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  1. Bugger me, Dutch disease and stagflation!

    Yeah, gotta laugh, otherwise you’d cry.

    Its all part of the structural changes that according to Fanboy will allow “the Australian economy to steady, realign, become more productive and to eventually find itself a role, in addition to initially and in replace of eventually, our reliance on resources”.

    No, he really did say that.

    More likely we’re hollowing out and our reliance on resources grows every day.

  2. > Its all part of the structural changes
    > that according to Fanboy will allow “the
    > Australian economy to steady, realign,
    > become more productive and to eventually
    > find itself a role, in addition to
    > initially and in replace of eventually,
    > our reliance on resources”.

    The new structure of employment will be as follows:

    1. Mining and related industries
    2. Public service
    3. Work for the dole

  3. I think, by now, everybody agrees that we don’t need manufacturing. We will live from money we earn by selling existing properties to each other

    • That’s right John. We don’t actually need to lower ourselves to so low as to make anything, because by the time retailers are out of business due to the devastating growth in online shopping, everything will be coming in cheap from overseas, delivered at a loss by AusPost with the generous support of the Australian tax payer.

      Still, there’s a real future in selling personal services to other Australians so that they can free up more time to sell personal services to other Australians…of course there must be, economists have been talking it up for years!

      Perhaps in time to come we can buy food online from China using Govt food stamps and we can barter for the rest of the services we need. If your dog walker wants to buy your formerly $550K house, she can commit to walking your dog a little over 18K times @ $30 a pop. At twice a day, that’d only take a little over 25 years, 3 big or 2 little dog lifetimes to pay off – about the same as your average mortgage term. It sounds like a workable concept, except what the hell the commodity traders would do I have no idea as they add no value to the world as it is anyway…

  4. Terminal case of Dutch disease but unlike the wise Norwegians, we have not put a cent aside for a rainy day but blown the proceeds by bidding up unproductive assets and building infrastructure for an unnecessary population boom. A hollowed out economy with nothing to fall back on is not an enviable position and value adding is currently in the too hard basket. From a distance it must appear that Australian politicians are fighting an undeclared war on manufacturing with their latest act of financial vandalism involving off-shoring pollution by ensuring no manufacturing occurs here at all.

    Insightful interview with Bluescope Steels CEO Paul O’Malley:

    • Paul O’Malley is talking out of his ar*e.

      Its not the 30% appreciation in the currency since this time last year, its not the huge run up in prices of iron ore and coal, its actually a timid, overcompensated, yet-to-be-implemented carbon tax that’s the problem with steel making in Australia.

      • It is interesting…as an employee of the other big steel maker, I can assure you that we aren’t exactly farting through silk right now…

        I can see what currency appreciation has already done to profits, and I can also hear the jungle drums beating for what may come post carbon tax. It paints a picture of going from bad to worse.

        We’re already in a contracting domestic market (it just hasn’t worked it out yet), and come carbon tax time, we’re just going to stomp out the last of our manufacturing sector in favour of imports – at least for anything which can be transported in a fully or semi-finished state.

        It doesn’t really matter what the cause of death is if the end result is the same does it?

      • Assuming you are being sarcastic, O’Malley does mention those things and adds that the carbon tax “makes it an even tougher gig” To be fair the interview was about the effect of the carbon tax on manufacturing in Australia and O’Malley struck me as a very genuine family man concerned about the future of this country in general and Australian manufacturing in particular.

  5. We are in good company
    “The Institute for Supply Management’s manufacturing gauge in July dropped 4.4 points to 50.9%, barely staying above the 50% no-change line and coming in below a MarketWatch-compiled economist poll of 54.3%. The new orders index fell into contractionary territory, and indexes for prices and employment in particular saw big drops.”

    After the initial rally the US stock market is tanking

  6. can anyone tell me what the fundamental differences are, apart from more developed institutions, rule of law etc, between the australian and russian economies? both seem to be highly dependant on exporting commodities with the fortunes of the wider economy depending on price of said exports… oh thats right australians create ‘wealth’ by selling houses to each other. sorry my bad.