▪ The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) eased by 0.8 points to 57.5 points in May, indicating a 20th month of continuous growth, albeit at a slightly slower rate (seasonally adjusted). Results above 50 points indicate expansion with higher results indicating a stronger expansion.
▪ May 2018 marked the longest run of expanding or stable conditions for the Australian PMI® since 2005. The longest positive run was fifty continuous months from July 2001 to July 2005.
▪ Five of the seven activity sub-indexes in the Australian PMI® indicated expansion in May. Sales levels were stable in May (50.4 points), while finished stocks contracted (47.0 points), as manufacturers drew down on inventories. Some manufacturers reported raw material shortages or delays in May and so they drew down on their inventories to meet demand. The new orders sub-index remained above 60 points, indicating healthy demand and a strong likelihood of further near-term growth.
▪ Seven of the eight sub-sectors in the Australian PMI® expanded in May, with only the wood and paper products sub-sector indicating stable conditions (trend). None contracted.
▪ Sub-sectors that provide manufactured goods for large transport projects and the construction sector continue to report very strong levels of activity, particularly from the eastern states (albeit slowing from very high levels earlier in 2018). Manufacturers on the east coast continue to report strong demand from the civil engineering (mainly transport projects), commercial building and defence industries.
Growth momentum in the Australian goods-producing sector eased noticeably in May, with overall business conditions improving at the weakest pace since August 2016. A softer expansion in new orders led to a moderation in output growth, prompting firms to hire staff at a slower rate. A weaker Australian dollar and rising raw material prices translated into intensified cost pressures, driving output price inflation to a fresh survey-high.
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.
