The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) extended its period of uninterrupted growth to 26 months in November, but the readings indicated a slowdown in the manufacturing sector’s growth during the month.
The Australian PMI slumped 7.0 points to 51.3 in November. This is the lowest result since October 2017 but it still indicates expansion in the level of activities in the sector.
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.
Food and beverages manufacturers reported higher production in the lead up to Christmas and respondents in other sectors reported high levels of activity related to infrastructure and construction projects, particularly in Victoria.
Ai Group Chief Executive Innes Willox said the slowdown in the sector’s growth could be attributed to the aftereffects of the drought as well as the uncertainties over the national energy policy.
“While it is too early to say that winter is coming for the sector, there are clouds on the horizon with new orders falling into contraction. Drought conditions in New South Wales and Queensland are now having an adverse impact on input costs and sales for some manufacturers and uncertainty over the direction of energy prices and policy is weighing heavily on the more energy-intensive parts of the sector,” Willox said.
Five of the seven activity indexes in the Australian PMI expanded in November, while employment was broadly stable (down 3.2 points to 49.4). The new orders index fell into contraction (down 10.1 points to 48.7) for the first time since September 2016, suggesting tougher conditions may be ahead for manufacturers in some sectors.
Five of the eight manufacturing sectors expanded in November, with the remaining three broadly stable. Growth was led by the printing and recorded media (up 4.6 points to 67.6), food and beverages (down 0.9 points to 57.9) and non-metallic minerals (mainly building and construction-related products – down 2.0 points to 74.9) sectors.
The input prices index rose 2.2 points to 75.0 in November, with food and beverages manufacturers reporting higher prices for raw agricultural inputs and high energy input costs continuing across other sectors. The wages sub-index fell back further from September’s record high, dropping 8.2 points to 58.8.
The manufacturing selling price sub-index dropped to its lowest level of 2018, falling 6.7 points to 50.4 in November. This indicates very modest price increases for manufacturing customers, with the upward trend evident throughout this year appearing to have halted.