Australian flash PMI slows

Markit reports that the Australian flash PMI has slowed:

Flash Australia Composite Output Index Feb: 54.4, 4-month low (Jan final: 55.9)
Flash Australia Services Business Activity Index Feb: 54.1, 4-month low (Jan final: 55.6)
Flash Australia Manufacturing Output Index Feb: 55.9, 2-month low (Jan final: 57.3)
Flash Australia Manufacturing PMI Feb: 56.6, 2-month low (Jan final: 57.2)

Further increases in new work in February and signs of emerging pressure on capacity led Australian companies to= raise employment to the greatest extent since October 2018.

Business confidence improved to a two-and-a-half year high on the back of hopes that the coronavirus disease 2019 (COVID-19) pandemic will come to an end, leading to further expansions in activity. Sharp inflationary pressures were signalled, with input costs increasing at the quickest rate in nearly five years of data collection and selling price inflation at a 28-month high.

The headline figure derived from the survey is the IHS Markit Flash Australia 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 IHS Markit Flash Manufacturing Output Index and the IHS Markit 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 54.4 in February from 55.9 in January, the headline index signalled a further solid increase in business activity across the Australian private sector. Output has now risen in six successive months, although the latest expansion was the softest since last October. Growth was recorded across both the manufacturing and service sectors.

A similar picture was seen with regards to new orders, with a solid but slower expansion seen during February. The rise in overall new orders was recorded in spite of a further drop in exports.

Sustained growth of new work started to impart pressure on firms’ capacity, as shown by a first increase in backlogs of orders in seven months.

Sustained new order growth, rising backlogs of work and stronger confidence – expectations hit their highest for two-anda-half years in February – led companies to expand their staffing levels. Moreover, the rate of job creation was the sharpest since October 2018. Employment rose across both monitored sectors, with jobs growth in the service sector the joint-fastest in nearly five years of data collection.

The rate of input cost inflation quickened to the steepest since data collection began in May 2016, with marked increases in input prices seen in both sectors. Manufacturers in particular continued to be affected by severe supply-chain disruption.

Companies meanwhile raised their own selling prices, extending the current sequence of inflation to four months. The rate of inflation was solid, and the fastest since October 2018. Manufacturing charge inflation hit a new record high.

Strong employment and jobs mean the headline slowdown is probably noise.