December PMI shows impact of economy on manufacturing

The performance of the Australian manufacturing sector improved slightly in December, but remained in negative territory.

December was the second month in a row of contraction in the Australian manufacturing sector, with the Australian Industry Group (Ai Group) Performance of Manufacturing Index (PMI) recording a figure of 48.3 points.

This marks the first time since mid 2015 that the sector has decreased in activity in two consecutive months.

According to Ai Group chief executive Innes Willox, the negative result increases the need for government action to grow the economy.

“The downturn in manufacturing recorded in November and December is a clear warning of the growing risk of a more broad-based slackening of an economy already in the slow lane. It adds weight to the view that serious consideration should be given to further fiscal stimulus,” said Willox.

The food and beverage sector was the only segment of the manufacturing industry to experience growth in activity, increasing by 0.6 points to 61.8. Machinery and equipment and chemicals recorded stable figures of 50.4 and 49.3 respectively, while metals products, building materials, wood and other manufacturing, and TCF, paper and printing all contracted in December.

Factors leading to these figures included drops in new orders, employment, finished stocks, and production. Supplier deliveries and exports recorded a rate of expansion in December.

Drops in residential construction activity led to contraction in the segments of the manufacturing sector which supply the building industry.

Willox noted that one bright spot for manufacturers is the relatively competitive Australian dollar.

“The main bright spots were the food & beverages sector, which extended the upward trend recorded by the Australian PMI since 2012, and manufactured exports which are benefitting from the competitive level of the Australian dollar relative to other currencies.”