Manufacturing had a soft start to 2011 with the January Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI) reflecting a general feeling of caution from manufacturers during the month.
The Australian PMI remained relatively unchanged at 46.7 points, up 0.4 points and remaining below the critical 50 point level for the fifth consecutive month (readings below 50 indicate a contraction in activity).
Manufacturers remained cautious in the month, driving down inventories (with the inventories sub-index down 11.4 points) rather than ordering new stock. New orders fell in seven of the 12 sub-sectors.
Falls were most marked in the construction materials; paper, printing & publishing and fabricated metals sub-sectors. In contrast, the chemicals, petroleum & coal; transport equipment; and machinery & equipment sub-sectors benefitted from strong post-Christmas orders.
"The continuing subdued performance of the manufacturing sector reflects the complex nature of the Australian economy; consumers and businesses are cautious and there is a structural squeeze on the sector arising from the resources boom and related strength of the dollar,” said Australian Industry Group chief executive, Heather Ridout.
“The immediate outlook is not encouraging with the forward-looking new orders sub-index falling for the fifth month in a row in January.
"Poor performance in sectors such as the basic metals and fabricated metals relate in part to the ongoing weakness in the construction sector. However, the impact of the Queensland floods is difficult to factor in at this time but could give support to activity in these sectors down the track.”
PwC global head of industrial manufacturing, Graeme Billings, said: "While some encouragement can be taken from the bottoming-out of the decline in production and a slow-down in the pace of employment decline, not too much should be read into these results at this stage as they may be related simply to adjustments to stock levels following a period of falling production. In general, the indications are that the flatness of the manufacturing sector has some way to run.”
The holiday period shutdown and strong exchange rate were among the factors that inhibited growth in January.
Nine of the 12 sub-sectors expanded in the month with the textiles, clothing & footwear and food & beverages sub-sectors among the strongest performers.
Sharp declines in basic metals, fabricated metals and paper, printing & publishing were largely due to soft demand, the strong Australian dollar and increased competition.
The new orders sub-index was up by 0.8 points to 45.1 in January remaining below 50 for the fifth consecutive month.
Manufacturers ran down inventories in the month with the sub-index dropping sharply by 11.4 points to 38.9.