The latest Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) declined by 0.7 points in March, to 47.9 points (seasonally adjusted). The Australian PMI® has signalled contraction in the manufacturing industry since November 2013 (readings below 50 points indicate contraction).
This month the production sub-index of the Australian PMI® fell back below 50 points, following a brief expansion (i.e. above 50 points) in February. The new orders sub-index however, moved higher in March to 52.3 points, signalling the first expansion in orders since October 2013. The sub-indexes for employment, stocks and supplier deliveries continued to indicate contraction (readings below 50 points) in March, with the stocks sub-index recording a big decline this month (down 5.9 points to 39.6 points). Export markets remain extremely tough for manufacturers, with the exports sub-index remaining around 30 points in March.
Manufacturing selling prices fell sharply in March, with this sub-index falling by 11.4 points to just 39.2 points. This followed a brief stabilisation in selling prices in February. Manufacturers’ margins remain under significant pressure as input prices continue to rise strongly, although wage growth remains relatively constrained this month.
Across the manufacturing sub-sectors, four expanded and four contracted in March. The food and beverages sub-sector continued its expansion in March but at its slowest pace since June 2013 (down 3.6 points to 53.4 points, 3 month moving average). The petroleum, coal, chemicals and rubber products (62.2 points) and the non-metallic minerals (66.9 points) sub-sectors expanded for a third month, while the small wood and paper products sub-sector has been expanding since October 2013. The very large metal products and machinery and equipment sub-sectors continued to contract in March (three month moving averages).
Respondents to the Australian PMI® voiced renewed concerns over both the high level and the recent appreciation of the Australian dollar. Manufacturers across almost all sub-sectors noted intensified import competition. This weighed significantly on local demand for their products.
The internals are a little better than the headline with weakening inventories and strengthening new orders:
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.
