Australian manufacturing sees slow but positive start to 2019

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) recovered by 2.5 points to 52.5 in January 2019.

This indicates that manufacturing conditions turned mildly positive again in January, after a flat result in December 2018 ended 26 months of continuous expansion (readings above 50 points indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

January 2019 saw a mild improvement in sales, new orders, exports and production compared with December for many manufacturers. Conditions remain more favourable for food and beverages manufacturers than those in other sectors, with exports and new orders looking especially promising.

Australian Industry Group chief executive Innes Willox said 2019 is clearly bringing a new set of challenges to Australian manufacturing.

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“The new orders index remains positive, but it is already below its long-run and recent averages, suggesting a slower period of growth lies ahead.

“Respondents continue to report problems with energy costs, shortages of specialist skills and fiercely competitive global markets,” he said.

“Locally, we are now also starting to see the effects flowing through into manufacturing of a weaker national construction cycle as well as the legacy of the drought.

“Recent changes in the finance sector are becoming relevant; for example, a number of manufacturers noted that difficulties obtaining customer finance is denting their business-to-business sales of certain types of specialist machinery and equipment,” said Willox.

Australian PMI: Key Findings for January:

  • The Australian PMI returned above the critical 50-points threshold that separates expansion from contraction in January, rising by 2.5 points to 52.5, after December’s flat result had ended a 26-month period of expansion – the longest such run since 2005.
  • Six of the seven activity indexes in the Australian PMI indicated expansion in January (see table below), but they have been trending down on average since Q3 2018. New orders improved by 2.0 points to 52.3 while the production index recovered from December’s mild contraction (up 4.9 points to 54.0). Supplier deliveries rose 6.2 points to 55.6, but finished stocks (inventories) were depleted in order to meet new year demand (down 7.8 points to 47.7).
  • Three of the six manufacturing sectors expanded in January with the largest sector, food and beverages, continuing to perform well, albeit a touch slower (down 1.0 point to 54.2). Machinery & equipment (down 0.1 point to 50.9) and metal products (down 0.2 point to 50.8) were broadly flat, while the chemicals sector experienced a mild contraction (down 1.3 points to 49.3).
  • The input prices index fell by 2.9 points to 70.3 in January. It remains relatively elevated as energy-intensive sectors continue to report problems with high gas and electricity prices. Meanwhile, the selling prices index returned to stability (up 5.6 points to 50.2) after price falls in December. Margins remain tight as manufacturers have been unable to pass on their rising input costs to customers.
  • The average wages index moderated by 1.5 points to 61.8 in January. The wages index has been trending lower since its recent peak in September 2018 but is still elevated compared to its long-run average of 59.2 points.