Manufacturing

Australian PMI®: Manufacturing stumbles in June 2019

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell 3.3 points to 49.4 in June 2019, signalling the first mild contraction in manufacturing conditions and the lowest result since August 2016 (readings below 50 points indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

Ai Group Chief Executive Innes Willox said: “Australia’s manufacturers reported the weakest conditions in almost three years in June (2019). While the pace of growth has eased over the past year, the combination of the housing construction downturn, a slowing in engineering construction, continuing drought conditions and slow income growth across the broader economy caught up with the manufacturing sector and dragged it into negative territory as the financial year drew to a close. While production edged ahead in June (2019), both employment and new orders were flat at best and pressure on margins intensified as sell prices eased and input costs and wages continued to rise. Manufacturers will be hoping that the combination of lower interest rates and personal income tax cuts translate into higher domestic demand over coming months. This reinforces arguments in support of the additional tax measures introduced in the last Federal Budget,” Mr Willox said.

Australian PMI®: Key Findings for June (2019):

  • The mild contraction in the Australian PMI® in June (2019) (down 3.3 points to 49.4) brings to an end 33 consecutive months of stable or positive results (50 points or higher) since August 2016.
  • Of the seven activity indexes in the Australian PMI®, only production (up 0.7 points to 51.9) and exports (up 2.8 points to 53.1) remained in expansion in June (2019). The employment (down 5.5 points to 50.1), new orders (down 2.5 points to 49.8) and sales (down 0.8 points to 50.8) indices were broadly stable, while supplier deliveries (down 6.5 points to 47.1) and finished stocks (down 6.8 points to 44.0) contracted – possibly due to end-of-financial-year stock clearances.
  • Three of the six manufacturing sectors expanded in June 2019 (trend), led once again by food & beverages (down 0.4 points to 60.6) and building materials, wood & furniture (up 1.2 points to 62.0). The metals products sector fell deeper into contraction (down 1.7 points to 40.8), as did the small but diverse textiles, clothing, footwear, paper & printing products sector (down 3.2 points to 44.1).
  • The input prices index remained elevated in June 2019, easing slightly by 0.9 points to 67.4, with machinery & equipment manufacturers in particular reporting increasing costs for high-value imported components due to the low Australian dollar.
  • The selling prices index fell 2.8 points to 49.6 in June 2019, indicating broadly stable or marginally falling selling prices. June 2019’s result is the first below the critical 50-point threshold (separating expansion from contraction) since December 2018.
  • The average wages index rebounded by 4.2 points to 59.7 in June 2019, indicating a faster rate of wage increases across the manufacturing sector. This comes ahead of the 1 July 2019 3.0% minimum wage rise, with the ABS estimating 21% of manufacturing employees have their wages set only by Awards (which are linked to the minimum wage).

Background: The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) is a national composite index calculated from a weighted mix of the diffusion indices for production, new orders, deliveries, inventories and employment. An Australian PMI® reading above 50 points indicates that manufacturing activity is expanding; below 50, that it is declining. The distance from 50 indicates the strength of expansion or decline. Australian PMI® results are based on responses from a national sample of manufacturers that includes all states and all sub-sectors. The Australian PMI® uses the ANZSIC industry classifications for manufacturing sub-sectors and sub-sector weights derived from ABS industry output data. Seasonally adjusted and trend data are calculated according to ABS methodology. The Australian PMI® commenced in 1992. More information about the history and methodology of the Australian PMI® is available online.

Source: Ai Group

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