Manufacturing slumped to a 3 year low in July with the seasonally adjusted Australian Industry Group-PwC Australian PMI falling almost 7 points to approximately 40 points. (Readings below 50 points indicate contraction in manufacturing activity).
Almost all sub-sectors recorded declines in activity with the exception of the food and beverage subsector which recorded a slight increase. There were large declines in the textiles; wood products & furniture; basic metals; fabricated metals; transport equipment; and miscellaneous manufactures sub-sectors. The largest fall was in the paper, printing & publishing subsector which fell to approximately 20 points. It was also the lowest reading for the month.
“Falls in manufacturing production and employment were the major factors behind the sharp drop in the Australian PMI in July,” said Innes Willox, Australian Industry Group Chief Executive. “The industry is experiencing substantial pressures driven by the strong dollar, cost increases, slow growth in domestic demand and competition from lower cost sources of production. Manufacturers are responding by reassessing and re-modelling their businesses but, as suggested by another drop in new orders and with the full impact of the carbon tax still to be felt, further falls in overall activity are likely in the months ahead.”
Both the production subindex and the employment subindex slumped almost 10 points in July with the employment subindex falling to its lowest level since May 2009. Almost all subsectors recorded falls in employment.
Wages continued to increase in July reaching their highest level since July 2011. The wages sub-index rose 12 points to approximately 71 points.
The input costs subindex rose approximately 5 points to almost 67 points, and new orders declined almost 6 points to approximately 40 points contracting in nine of the 12 subsectors. Selling prices remained low with the subindex at approximately 42 points putting further pressure on manufacturer’s profit margins.
“The July result is a three year low for the manufacturing industry with all of the major sub-indices of the Australian PMI declining,” said Jeremy Thorpe, PwC Partner – Economics and Policy. “Worryingly, the USA, Japan, China and Eurozone are all simultaneously contracting and posting results below the benchmark reading of 50 points. This demonstrates the weakness of the global economy and the continued softening of the Chinese economy.”
The Australian PMI® is a seasonally adjusted national composite index compiled by surveys of a representative sample of over 200 firms. Surveys are based on production, sales, new orders, supplier deliveries and employment. A reading above 50 points indicates that manufacturing is expanding and below 50 indicates that it is declining.