Manufacturing is getting murdered

Nice. The raging recession in Australian manufacturing is worsening. The PMI dropped to a new cycle low, having been in effective recession for over a year.

The internals of the survey are very nasty. 10 out of 12 sectors are shrinking:

Capacity utilisation is collapsing, suggesting more job losses are ahead:

The rate of new orders is shrinking, with the second derivative of the pace of the decline slowing a slim hope:

And, finally, margins are getting killed between rising costs and falling prices:

I look at a lot of PMIs around the world. This is by far the worst.

PMI September 2011 Report FINAL

Houses and Holes
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  1. I agree, it is looking very bleak for manufacturing.

    Can I ask why you consider that to be “Nice”

    • Was sarcastic. I consider it shocking. The sarcasm arises from the fact that capitulation to this wipeout is the macroeconomic plan from the RBA and Treasury. And from the fact that the AIG, who procudes the PMI, is doing squat to prevent the destruction of its membership.

      • While it is fair to blame our government policy makers and lobby groups the RBA does not have any targetted tools for reducing agg demand in certain industries. The RBA just ensures there is some capacity in the economy so business can grow among other things.

        It would have been more reckless of the RBA to allow demand and inflation to go out of control irrespective of whether the additional demand was concentrated around capital investment in one particular industry or across all industries.

        • Exactly. And that is the reason why the RBA should not have the macro responsiblity they’ve got currently. The policy mix is dysfunctional and has been for 20 years. In a normal country this sort of manufacturing shrinkage would be considered a national emergency.

        • The RBA (all central banks) serves no useful purpose. Since when is price setting by a committee of conflicted-interests ever good for anyone.

          I thought the communist experiment ended years ago…

      • OK fair point. I think that our manufacturing, tourism, education, and other $AUD related industries will continue to struggle until our dollar heads back to $0.70 USD – but when that will be is anyones guess. The RBA could lower the exchange rate by maybe 10 cents but at the risk of a ZIRP enviroment, which could damage the economy much more that it is now with high inflation.

        Not an easy situation.

        • That’s a very humourous article. One of the anchors we in the West drag around is compliance, something that they care little about in Asia, which just adds to our comparative ineficiencies. Not that some measures and standards are not justified, but really the level now is so high it takes the focus off the main game. Companies spend more time on compliance than they do on management and marketing strategy, which can’t help.

          I think that just going back to the basics won’t help, Asia will beat them at that.

          Some decades ago the USA protected their best assets such as computer hardware under the guise of national security, rather than tariffs. If they are smart enough, they will make quantum leaps in technology, and then create a way to protect that industry and its offshoots via a non tariff method.

  2. Maybe it is just a male thing but I very much lament this loss and growing loss of productive and creative skills and capacity.
    The wrong people are getting paid in this country. I sit in an AC office and shuffle paper all day and produce virtually nothing of value and get paid too much to do it compared to a factory worker that actually produces stuff that I need and value.

  3. Nothing will change till we get the recession we have to have. If the interventionists have the courage to let go of the stick for a little we’ll get through this quicker and less painfully.

    I notice the TD Securities survey today still showing signs of inflation. The sooner we get a reset on wages and materials the better.

  4. After reading this following Interview with L Randall Wray, this should make you even more worried if he’s correct. He’s calling current commodity prices a bubble driven largely by pension seeking a place to invest the vast amounts of money they have to manage, and this is just the latest bubble they’ve blown. He considers the synchronous rise of all major commodities to be too much of an anomaly to be explained just by supply & demand.

    Also, could much of this also be explained in the collapse of new building as well?

    • I don’t know that it is a bubble. It is just an industrial cycle playing out the investment end of the cycle.

      Prices this high above costs are unsustainable (just like in a bubble, sure) but this is just how capitalism deals with the allocation of resources around items with a long lead to increases in capacity.

      • Well if he’s correct, it seems hanging our hopes all on the mining boom at the expense of the sectors that actually employ lots of people, like manufacturing, will turn out to be even more unwise than it is now.

        We better hope that Grantham is right, and there is a fundamental change with commodities, and prices should be under a steady upward pressure due to the growth of India and China.

        I think they both make good cases, and could both be right, yes current prices are stupid high, but physical demand could now be high enough to reverse the century plus long trend to ever lower real prices.

    • Hi Carbonsink, great to hear from you again. I hope things have turned out well for you.

      Yep it’s me. I don’t post here often, this is just a sudden burst. This site is much better than it was some time back, and the OP’s are a high standard.

      Not that I’m in complete agreement, as you would expect.

      • Yeah its turned out great if laying off all your staff and winding up the business is your idea of “turned out well”.

        Our transformation into Quarry Australia is well underway.

          • My story is a microcosm of what’s happening across the country. Miners raking in the cash, mainstream economy struggling, non-mining exporters being exterminated.

  5. Tend to agree with the point Johno (11.01am) makes, Not so much the factory workers but rather the engineers, designers and skilled trades people that are getting scarce due to the West giving all it’s manufacturing to China. We have never had a cycle before whereby our manufacturing went overseas and then came back again, It doesn’t happen, once factories close down the communities loose those skills,..try building a ship in Belfast now..We only have old B & W photos to remind younger people of what we could make before Facebook. Great title H & H and most of the murders are Walmart and Bunnings..What good is a $10 drill in this looming recession?