August lockdowns impact on manufacturing expansion

expansion

The Australian Industry Group (AI Group), an Australian peak employer organisation, has released its Performance of Manufacturing Index (PMI) report for August, which determined weak expansion across manufacturing. 

The Australian PMI dropped by 9.2 points to 51.6 in August, pausing a solid period of recovery for 2021. 

“August saw a steep retreat from the healthy expansion in manufacturing performance that has characterised most of this year,” AI Group chief executive Innes Willox said. 

“Lockdowns across the country, particularly in NSW and Victoria were the major detractor from performance with ongoing strength outside of these states sufficiently strong to maintain the national performance in positive territory (although by a slim margin).” 

Some sectors performed better than others, as a result of COVID-19 lockdown measures. 

“The building materials and metal product sectors saw the steepest declines due in large part to the impacts of lockdown measures on the construction sector,” Willox said. 

“The food and beverage and chemicals product sectors continued to grow strongly while the machinery and equipment sector barely held onto recent gains.” 

However, Willox remains optimistic about growth for September. 

“Employment grew slightly across the manufacturing sector as manufacturers built up stocks rather than cut back on production,” Willox said. 

“Looking forward, there was positive news in the further growth in new orders in August and the easing of restrictions on construction will go some way to rebuilding confidence or at least hope among its suppliers.”  

Australian PMI key findings for August 2021 

Of the six manufacturing sectors in the Australian PMI, only food and beverages expanded at a faster pace in August (seasonally adjusted). The related sectors of chemicals and TCF, paper and printing also expanded, albeit at a slower rate. 

Machinery and equipment manufacturing stalled, while metal products and building materials manufacturing contracted, due to restricted manufacturing and construction activity in NSW and Victoria. 

The activity indices in the Australian PMI indicate that in August, average sales and production levels paused but exports and deliveries from suppliers both contracted. New orders and inventories continued to expand, suggesting that sales are being delayed. 

The input prices index remained elevated in August, but eased from its record high in July. Manufacturers continue to report high freight costs. 

The selling prices index also eased but remains well above its long-term average, suggesting that more manufacturers are passing on some of their costs increases to customers. 

The average wages index slowed in August in the wake of a large rise in July, which is the month in which most manufacturing sector wage rises typically occur. 

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Results above 50 points indicate expansion. *All indexes for sectors in the Australian PMI are reported in trend terms (Henderson 13-month filter).

The 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. 

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