Australian PMI 4.4 points higher in August

Improvements in the production, employment and new orders subindexes saw the manufacturing sector contract at a slower rate in August. The Australian Industry Group (Ai Group) Australian Performance of Manufacturing Index (PMI) was 4.4 points higher at 46.4 for the month. Readings below 50 indicate a contraction in activity.

Despite the slight increase, Ai Group says August marks the 26th consecutive month of contraction in the manufacturing sector, which is the longest period of contraction in the Australian PMI’s 21-year history.

Three subsectors grew in August with food, beverage and tobacco products recording the strongest reading (56.8 points in three month moving average terms) with a fall in the Australian dollar giving the subsector an apparent boost. In contrast, the lower dollar is having its expected negative impact on the prices of imported inputs with the input prices subindex reaching its highest level (75.1 points) in more than two years.

The pace of contraction eased for new orders (44.3 points), employment (46.3 points) and particularly for manufacturing production, which rose by 9.4 points to 47.1 points in August - its strongest level since March 2012.

“There were mixed signals from manufacturers in August,” said Ai Group Chief Executive Innes Willox. “The fall in the value of the dollar is beginning to be felt, with some businesses reporting improved competitiveness against imports.

“However, exports continue to struggle, while the lower dollar is also pushing up average costs for non-labour inputs, many of which are imported. The persistence of downwards pressure on selling prices indicates that manufacturers have little ability in these difficult market conditions to pass on these higher costs and take the pressure off their margins.

“The extent of the structural challenges facing manufacturers was underlined in August by the Australian PMI recording its 26th consecutive month of contraction and indicating 22 consecutive monthly falls in employment. Of course, this is more than just a challenge for the industry itself; it is also exposing the broader economy to a risky imbalance.”