Manufacturing productivity rockets!

The Australian PMI is out this morning and it’s great news with the manufacturing productivity drive surging to new highs, down 1.2 points to 44.4:


Even better, those sub-sectors that bounced in February fell back towards greater productivity drives in March (as expected after a Chrissy binge that inefficiently increased trade):


Most promising of all, it was in the export facing sub-sector where productivity enhancement was most obvious and the trend appears to be going parabolic:


The internals in general were also productivity awesome:


Dunn and Bradstreet reported today that manufacturing capex intentions collapsed to new lows in the June quarter. That should boost productivity even further, all the way to extinction.

Pmi Final Report March 2013


  1. GunnamattaMEMBER

    Well when all is said and done this is policy almost.

    There is nothing being done about the AUD (sure it isnt all AUD but the currency would have to be about the biggest single factor here). The vast bulk of the globally exposed Australian economy is structured around a much lower dollar.

    Manufacturing productivity becomes bulimic.

    The only thing that breaks the trend is job losses on such a scale they cant be hidden.

  2. I reread the first paragraph maybe 5 times, wondering what i was missing, i should have just kept reading.

  3. Loving that export index. Adam Carr’s rate hike today should put a rocket under the AUD and drive productivity further!

  4. However we have some way to go to achieve the level of June’09 – a remarkable 30.1.

    Can we do it.

    • That was in the context of a global economic catastrophe. This time we’re doing it to ourselves.

      • There are a few global issues hanging around – like ongoing deindustrialisation in many modern economies.

        It’s just that on paper we look a lot better than most and continue, for a least a time, to the FX darlings.

        As noted on the other thread, the srength of the AUD is not exactly vigorously opposed by the powers that be.

      • Which is interesting given we have a Labor government. They provide transfers to their supporters, but the reforms needed to actually help the sector are not happening. I’d say the government is actually hindering the sector. Julia is seen as being tough, but she is actually a policy weakling.

        I’m not sure whether Labor is addressing this issue but its also worth considering, which is the rise of disability support pension and the hidden unemployed, which is mostly being experienced by blue collar workers. We haven’t been able to move up the industrial value chain to the extent needed and therefore blue collar workers are laid off and sit on welfare. This seems like a Labor party issue in particular. I’m no expert on this – has disability support fallen or is it continuing to grow? My understanding is that is is quite a big issue, (although one that the mining boom may be helping), and it is a drain on public finances, not to mention the social repercussions and increasing inequality between classes that occurs.

      • “I’d say the government is actually hindering the sector.”

        And that’s a very big part of the problem along with the AUD.

        This Govt hates Business. Focussed solely on it’s survival (transfers) and appeasing it’s Union masters, the hate for Business is all too tangible. Business responds by going into a shell and being a smaller target – downsizing, squeezing margins and limiting capital investments.

      • Thanks Alex, really interesting. You’ve got 819,000 on DSP, and 660,000 unemployed. That puts our actual unemployment rate over 12% by my count. Bob Gregory’s done heaps on this – I remember him saying that people move from unemployment to DSP, the unemployment rate stays low and the problem is masked. Interesting to see most of the growth has been from women, but in the last 20 years the number of men on DSP has doubled. Its pretty huge.

        I’m not passing judgment on this, but its an issue – you’ve got to ask yourself if the right policies and systems are in place to support people ie provide a strong education and a flexible labour market with the right incentives to work. Quite a few on DSP could probably physically work, but have they been prepared by the system to be mobile and retrain? Are our schools teaching too fluffy material and making too many excuses for students? Are we providing too little incentive to work hard? This is the type of issue the govt should be addressing. Seems as though it is a problem for all advanced economies, esp America – as you become richer, how do you take the whole country with you when it is the very educated that can handle the dynamic economy but not the unskilled workers. But the richer you become, the more decadent and entitled you are, and thereby expect more from the govt. And no leader will seriously tell voters ‘no’.

        Methinks that the manufacturing story in Australia is more than just the currency (although not douobting the currency is a huge force), and it is part of a bigger problem we have.

      • P.S. Jake as per your post. This problem cannot be solved by a tweak to lower interest rates or a tweak to tax rates or whatever. We need to really assess where our society is at; where our education systems are at; what are our cities for? etc etc etc

      • Yep flawse, and that goes to the state of economics that I’ve referred to in another thread today. There simply isn’t the understanding to make the appropriate changes to institutions. And then you need the willpower. The public service is not up to the task to propel us to the next level. Need some leadership from the top who will take on the vested interests and make the reforms. But that is nowhere in sight.

      • Seems as though it is a problem for all advanced economies, esp America – as you become richer, how do you take the whole country with you when it is the very educated that can handle the dynamic economy but not the unskilled workers.

        I’ve encountered something along those lines, and to me it related more to more liberalised trade rather than overall affluence. I agreed with it, and is the only argument I have against free trade.

        One of the things observed in post-WWII Australia which made its immigrant program rather successful was the limited long term ghettoisation of ethnic groups. One theory was that it was due to full employment and the prevalence of the harvester ruling.

        One of the outcomes concluded was that the low skilled, or non-english speakers, actually had some semblance of a career to aspire to, or entry level position to really build upon.

        Now, this class really can only apsire to cleaners or low skilled hospitality, which really don’t generate career paths for large numbers or skills that can cross sectors.

      • Rusty Penny, that’s a great couple of points, especially on the immigrant issue.

        I agree, trade (and the competition that goes with it) is the big structural factor at play. When a country gets expensive, industry flows overseas over time – and we’ve known that since the 1700s and David Hume. Complacency and a malfunctioning incentive structure also may be a factor but its probably mainly that you can make more money elsewhere in manufacturing.

        Looking at the employment breakdown data that MB shared last week, other trade exposed industries like education and tourism are doing a lot better than manufacturing, which does put a dent in the argument against the high dollar. Australian tourism is not a commodity, and is a unique industry with a competitive advantage, whereas some manufactured products are effectively commodities, meaning low cost is essential and we can’t compete. And those manufactured goods that are not commodities can be made overseas too. And when an economy becomes service orientated, how do you incorporate workers from manufacturing where service is not a skill needed?

        You’re right, its an argument against free trade, but I guess with all the benefits trade has brought us perhaps its just got to be seen as an unfortunate cost that we need to work to manage. But its also why perhaps growth in programs like the DSP are not all bad, and why I said earlier I’m not making judgments – maybe this is the cushion the vulnerable need in an economy that can’t really provide for them anymore?

        Another perspective, which I have just remembered, which adds some flavour to this is this article:

        It says that in the US, men have been doing worse than women and it may well be due to them fairing worse in single parent homes. This is quoting Daniel Autor, a pretty reputable US labour economist who has done lots of work on the US DSP.

        Autor disagrees that men are less industrious, is open to the idea that women have done better because they are more adaptable, and finds that the decline in manufacturing is not a huge factor. He seems to put a fair bit of emphasis on the poor outcomes of kids in single parent households, especially the boys.

        I’d argue you have to look at all these factors as being related and part of broader social changes over time.

    • but as the above data shows we are far more efficient with the process of rebalancing of our economy

  5. I choked when I saw the headline, wondering “how the heck…….all my doomsaying is going to have to be re-thought…..”

    OK, I get it….! Nice one……!

    • There is a strong connection, almost universally ignored, between the productivity of the urban economy, and the urban planning system and “land rent”.

      The UK urban economist Alan W. Evans (University of Reading) may have been the first to insist that there was a connection. The following is from his “The Land Market and Government Interventions” (1999):

      “……With respect to the UK, Monk et al. (1996) observe that, because planning constraints reduce the elasticity of supply, the land-use planning system in the UK exacerbates cycles in house and land prices (p. 509). It has also been argued that they have significantly slowed the growth of the UK economy (Evans, 1988), and although this would be difficult to prove, nevertheless, given that local authorities have deliberately set out to restrict the growth and movement of firms (Evans, 1992), it would also seem difficult to deny. We have already noted that, in any event, Cheshire and Sheppard (1997) estimate the static costs of containment in southern England as equivalent to a 10% tax on incomes. The oddity is that because macroeconomists have little interest in town planning, planning controls are rarely cited by economists as one of the causes of the slow rate of growth of the British economy…..”

      While the above work was in progress, a McKinsey Institute paper was published in 1998, “Driving Productivity and Growth in the UK Economy”, in which they suggest that a high proportion of the UK economy’s low productivity (lagging comparable nations by 20% to 40%) is in fact due to the UK’s all-pervasive urban planning system. There are a few basic reasons for this.

      Firstly, increased congestion; secondly, by businesses inability to afford “space” for efficient processes (eg workers crowding each other, stock on shelves being less accessible, aisles narrower, production lines too cramped); and thirdly, by “anti-competitive” effects: including not just a reduction in new business start-ups, but also that most potential participants in spatial “agglomerations” of the Silicon Valley type are excluded very soon after such an agglomeration has even started; there is either no spare land at the location, or it is far too expensive.

      The findings of the McKinsey Institute were built on by Alan W. Evans in a book published in 2004, “Economics and Land Use Planning”. And to date there is a whole series of excellent papers from Paul Cheshire and various colleagues at the LSE. There is a good summary paper, “What we Know (and Don’t Know) about the Effect of Planning on Economic Performance”, by Max Nathan and Henry Overman. It includes references to the LSE’s research over the years.

      Further ongoing research is constantly discussed on the LSE’s “Spatial Economics Research Centre” blogspot.

  6. Not much need for fancy words to explain the export sector it’s simply called capitulation!

    At the moment all anyone can do is to wait on the sidelines while the process runs its natural course. At some point the politicians will need to start jawboning, but don’t be fooled by weasel their words.

    It’ll be interesting to see which Aussie export industries survive. It seems to me that Australia only wants manufactures that meet the following criteria:
    – Not energy intensive
    – Not labor intensive
    – Not capital intensive
    – Definitely not skill intensive
    – Ideally requiring zero land
    – definitely not polluting
    – requiring zero water

    I’m sure I’m missing other essential requirement, so maybe the relevant department should post a definitive list!

    • GunnamattaMEMBER

      Definitely not globally exposed, and preferably reflecting a natural monopoly.

      • Thanks Gunna,
        I forgot the following
        In no way shape or form, dangerous
        Not requiring the use of any chemicals (that’d require our fire abd saftey people to be retrained)
        probably best if you don’t actually make anything
        Not to forget (No EM fields) WFT is this EMF fixation in Oz?

    • I have just seen a very interesting comparison of the UK’s export income versus Germany’s. Germany’s is 76% “goods”, 12% “services”, and 11% “receipts of income”. The UK’s is 43% “goods”, 22% “services”, and 32% “receipts of income”.

      Nice work if you can get it. Won’t you tell me how?

      Because it is far from certain that the Aussie economy has this kind of luxury.

      Tiefenbrun in the Journal of the Royal Society of Arts, August 2006:

      “….the sad truth is that nobody in Britain has built a major manufacturing company from scratch since the time of the Attlee government of 1945. . . . .No other country has such a pathetic track record of manufacturing business creation. All our major manufacturers pre-date the Second World War…..”

      Or the Town and Country Planning Act of 1947!

      Google search “LSE Best Laid Plans” for the entire PPT. It is full of insights like this.

  7. In tough time, you have to ask remaining staff produce more or go bust, unless your business is under government subsidy. It happened in US before that productivity increase in recessions.