The Australian private sector continued to see output rise during October, but the rate of growth was only slight. In fact, the latest expansion was the weakest in the survey’s two-and-a-half year history. The slowdown was centred on the service sector, where activity rose only marginally. Meanwhile, manufacturing firms signalled a further solid expansion in production. New order growth also eased at the start of the final quarter of the year, but the rate of job creation accelerated.
The headline figure derived from the survey is the Commonwealth Bank of Australia Flash Composite Output Index, which is designed to provide timely indications of changes in output in the Australian private sector. Readings above 50.0 signal an improvement in business activity on the previous month while readings below 50.0 show deterioration. The Index is a GDP-weighted average of the Commonwealth Bank Flash Manufacturing Output Index and the Commonwealth Bank Flash Services Business Activity Index. Flash indices are based on around 85% of final survey responses and are intended to provide an advance indication of the final indices, published approximately one week after the flash release.
At 51.2 in October, down from 52.5 in September, the headline index pointed to a modest increase in output. While some companies indicated that activity had risen in line with higher new orders, others signalled signs of slowing market demand.
New order growth also eased at the start of the fourth quarter, with weaker increases across both the manufacturing and service sectors. Manufacturers also saw the rate of expansion in new export orders ease. On a more positive note, the rate of job creation accelerated. Employment rose solidly, and to the greatest extent since December 2016. This increase in capacity led to a stabilisation of outstanding business, following an accumulation in September.
The Commonwealth Bank Flash Services Business Activity Index is designed to provide a timely indication of changes in business activity in the Australian service sector economy as a whole. Readings above 50.0 signal an improvement in business activity on the previous month, while readings below 50.0 show deterioration.
Growth of services activity in October was the slowest since the survey began in May 2016, while business confidence dropped to a 28-month low. That said, employment rose at a solid and accelerated pace, leading to a second reduction in backlogs of work in the past three months. The rate of input cost inflation ticked down, but remained sharp. Meanwhile, output prices increased at the same pace as in September.
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.
