Production, new orders fall sharply during April

Manufacturing was back in the red last month, with production falling sharply to 43.9 PMI points, according to the latest Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI).

The April report shows a 5.6-point drop to 43.9, which is well below the 50-point level which separates expansion from contraction.

The strong Australian dollar, softer demand, import competition and the impending carbon tax were once again cited by Ai Group as factors affecting manufacturing growth.

The largest falls were reported in the basic metals, textiles and wood products, and furniture markets, with construction materials and paper, and printing and publishing experiencing a surprise increase during the month.

While employment, production levels and selling prices across the board fell to 46.1 and 43.9 and 44.3 PMI points respectively, the fact that wages (58.3) and input costs (60.9) continued to rise is indicative of manufacturers under increased costs pressure.

Perhaps the most worrying figure was that for ‘new orders’, which fell sharply by 6.2 points to 42 points during April.

South Australia and Western Australia were the only states to record expansion in manufacturing activity in April.
According to the Ai Group’s new group chief executive, Innes Willox, the steep fall in manufacturing activity is of serious concern, even though the PMI sample covers only a short month.

“The fall in the Australian PMI is consistent with what we are hearing from Ai Group members and a range of other data,” said Willox.

“Manufacturers continue to be adversely affected by the strong dollar, comparatively high unit labour costs and rising energy prices.

“Production, employment and new orders all fell sharply in April pointing again to the importance of lower interest rates both in reducing borrowing costs and in easing pressures on the currency.”

The April PMI mirrors the previous month’s PMI drop, which showed manufacturing during March moved into negative territory (falling 1.8 points to 49.5) due to the strong Australian dollar and softer demand.

Seven of the 12 sub-sectors recorded declines in activity, led by drops in the clothing and footwear, and wood products and furniture sub-sectors.

According to PwC Partner – economics and policy, Jeremy Thorpe, the poor March and April PMI results are to be expected, following the recent slew of job cuts across Australian industry. He warns of further production drops in May.

"As predicted in February, after a flood of announced job cuts in the manufacturing industry, the result has been a dramatically reduced Australian PMI,” he said.

“April figures show ten of the 12 manufacturing sub-sectors recording a decrease in activity. With job cuts continuing to be announced in the manufacturing sector, it is probable the Australian PMI will continue to decline, irrespective of the likely Reserve Bank interest rate cut in May.”