Australian manufacturing contracts again

Australian manufacturing contacted for the third consecutive month in February, despite hopes that a lower dollar would boost the sector.

The Australian Industry Group Australian Performance of Manufacturing Index (PMI) for February was 45.4, a fall of 3.6 points from January.

Figures above 50 represent expansion in the sector, while figures under 50 indicate contraction.

The re-evaluation of the dollar did have some positive effects on the sector. The manufacturing exports sub-index, which was unchanged at 53.9, expanded for a third consecutive month.

However all other sub-indexes came in under 50.

Manufacturing production was down 3.7 points to 45.0; New orders dropped 3.4 points to 44.2; Manufacturing sales was steady at 45.3; Supplier deliveries dropped 6.0 points to 46.9; and stock levels was down 4.4 points to 47.0.

Ai Group Chief Executive, Innes Willox said, “While there are bright patches, most notably for food & beverages and producers of building materials, weak domestic demand from businesses and households is offsetting the boost that many domestic manufacturers might have expected to flow from the weaker Australian dollar.”

He singled out mining construction and automotive assembly as examples of areas where local demand has dropped.

“The weakness of domestic demand certainly provides further backing for the Reserve Bank's decision in February to reduce interest rates and it underlines the importance of using the May Budget to provide a boost to domestic activity – including by delivering on the commitment to cut the company tax rate to 28.5 per cent for all companies," he said.

In further bad news, manufacturing employment contracted for a second month in February (down 1.6 points to 45.9).