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Australian PMI®: Food and beverages underpins manufacturing expansion

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The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell by 3.1 points to 51.6 in October (2019), with an earlier-than-usual pre-Christmas boom in the food & beverage sector offsetting the broader industry’s flagging growth (readings above 50 points indicate contraction in activity, with the distance from 50 indicating the strength of the increase).

Ai Group Chief Executive Innes Willox said: “The broader manufacturing sector expanded in October (2019) with strong contributions from businesses in the food & beverage, chemicals and machinery & equipment sectors. Growth in these sectors was sufficient to offset further weakness among building products, metals and TCF, paper & printing manufacturers. The overall pace of expansion weakened with a slower rise in employment, and a contraction in new orders overshadowing rises in sales and production. Weakness in construction was clearly a factor dampening conditions in the metals and building products sectors while continuing strength in mining assisted the machinery & equipment and chemicals sectors. There are indications of a bring-forward of Christmas-related sales. This, together with a slight decline in new orders will have manufacturers wary about the sector-wide performance in the coming months,” Mr Willox said.

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

  • Five of the seven activity indexes in the Australian PMI® indicated expanding conditions in October (2019), while two contracted. The exports index rose back into expansion (up 2.2 points to 51.8), with some respondents noting increased demand from the United States. New orders contracted (down 8.8 points to 48.3), raising the prospect of difficult conditions for manufacturers in the coming months.
  • Three of the six manufacturing sectors in the Australian PMI® expanded in October (2019) (trend), led by food & beverages (up 1.3 points to 61.8) and machinery & equipment (up 0.2 points to 54.2), which increased their pace of expansion. The chemicals sector (down 0.7 points to 52.0) expanded, albeit at a slower pace in October (2019).
  • The metal products (up 1.5 points to 43.5), building materials, wood & other manufacturing (down 3.4 points to 48.5) and TCF, paper & printing (up 1.1 points to 43.8) sectors all contracted.
  • The input prices index climbed further on top of September’s 2019 high (up 2.8 points to 74.7), with some respondents noting higher prices for imported inputs because of the lower trading range of the Australian dollar. The average wages index eased back (down 4.5 points to 59.3), indicating a lower proportion of businesses are facing wage pressures.
  • The selling prices index dropped by 3.9 points to 45.0 in October (2019) – the lowest result since December 2018 as manufacturers struggle to pass on escalating costs.

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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