The latest seasonally adjusted Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) improved by 1.5 points in October, rising to 53.2 points. This was the second consecutive month that the Australian PMI® has moved above 50 points, indicating mild expansion across the manufacturing industry (50 points marks the separation between expansion and contraction in the Australian PMI®).
This month’s overall expansion was driven by stronger readings (with levels above 50 points) for the new orders and production sub-indexes. The sub-index for supplier deliveries also remained above 50 points, albeit at a slightly weaker level than in September. The employment sub-index continues to suggest contraction, at 48.6 points.
Across the sub-sectors, expansion was again strongest in the food, beverages and tobacco sub-sector, with mild expansion evident in some of the smaller sub-sectors. The metal products and machinery and equipment sub-sectors continue to show contraction.
Comments from survey participants indicate that although new orders are improving, they are not strengthening for every business and they are not strengthening by a lot. So far, businesses see this improvement as a welcome stabilisation or ‘catch-up’ period for local orders that were delayed earlier in the year, rather than a new phase of business growth.
Businesses note that export markets remain tough. The exports sub-index showed some improvement but is still at very low levels, indicating ongoing export contraction.
I shouldn’t look a gift horse in the mouth but regular readers will recall that this is exactly what I’ve been expecting from the business cycle as the mid year inventory rundown obvious in so many business surveys reversed following the election. The internals are all pretty indicative of this with employment still in contraction:
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I remain unconvinced that it will convert into a virtuous cycle of growth next year but the housing construction bounce will help. Let’s enjoy it for now.
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.
