Australia PMI recovery slows in May

The Australian Industry Group’s (Ai Group) Australian Performance of Manufacturing Index (Australian PMI) has remained in expansionary territory at 52.7 points in May. It marks the 33rd consecutive month of stability and reading over the 50-point mark.

Despite its positive streak, the PMI has dipped 2.1 points from the previous month, indicating a slower rate of growth.

“While Australia’s manufacturing sector continued to grow in May, performance was mixed across the range of manufacturing industries and there are signs of further softening in the months ahead,” said Innes Willox, chief executive of Ai Group.

“Manufacturers are hoping that the resolution of political uncertainties associated with the election will provide a base for a return to more robust conditions. As one member put it in responding to the servery, ‘elections kill business’. The medium-term outlook remains clouded by the prospect of uncompetitive prices for gas, both for direct industrial use and as a critical input into electricity generation.”

Ai Group’s survey reports five of the seven indexes in the Australian PMI indicates expanding conditions in May, while two indicated broadly stable conditions.

All indexes slowed compared to April except for employment (up 4.1 points to 55.6) and finished stocks (up 2.9 points to 50.8). The production index experienced its largest fall since October 2017 but remained in expansion (down 6.9 points to 51.2).

The PMI’s May key findings indicated that three of the six manufacturing sectors expanded, led through food and beverages (up 1.8 points to 63.9) and building materials, wood and furniture (up 3.8 points to 62.0).

“Momentum eased for production, sales, exports and new orders with at best moderate growth recorded in these sub-indices. While the large food and beverages sector continued to grow strongly, as did the building, wood, furniture and other products category, the important metals products and machinery and equipment sectors slipped further,” Willox said. “The chemicals sector lifted modestly and the businesses in the textiles, clothing, paper and printing sector recorded a slight reduction in performance.”

Both the metal products (down 0.3 points to 45.2) and machinery and equipment (down 0.9 points to 45.1) sectors contracted further in May, weighed down due to slowing economic conditions.

In addition, input prices index has risen (up 3.6 points to 68.3) after falling in the previous two months, with elevated energy prices remaining the largest concern for many manufacturers.

The selling prices index slipped 2.8 points to 52.1, suggesting the prices for more manufactured goods went up but at a slower pace compared to April and the average wages index declined 2.2 points to 55.5 in May. This indicates ongoing wage pressures across the manufacturing sector, but at its slowest rate since March 2017.