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Current Contraction in Australian Manufacturing Comparable to Manufacturers In Recession-Hit Euro Zone

November 1, 2012 • News

The Australian manufacturing sector has dipped into contraction, for the eighth consecutive month, according the AIG Performance of Manufacturing Index (PMI).

Image courtesy of [Paul] / FreeDigitalPhotos.net

A continued softness in new orders, combined with more than a ten year low in the selling price sub-index, had contributed to the eighth consecutive month of contraction across the manufacturing sector in October.

The seasonally adjusted index was up 1.1 points in the month to 45.2, still well below the 50 mark – indicating a contraction.

AIG revealed, the new orders sub-index dropped a further 0.4 points to 43.9 in October, with the only sub-sectors to expand in the month were paper, printing & publishing (51.1) and transport equipment (52.5).

Manufacturers have again citied the high Australian dollar and stronger import competition as the key cause, with rising energy prices also hindering growth in October.

Australian Industry Group Chief Executive, Innes Willox, said: “Manufacturers continue to find the going very tough in the face of the strong dollar, weaker demand in export markets and flat conditions across the non-mining sectors of the domestic economy – particularly in commercial and residential construction which has strong linkages with domestic manufacturing.

“For quite some time, the sector has faced a squeeze on margins with prices for non-labour inputs and wages rising steadily while selling prices have been weak. In October the squeeze intensified with the selling price sub-index recording its lowest level since being introduced into the Australian PMI® over a decade ago. Non-labour input prices and wages paid by manufacturers continued to rise in October although the pace of wages growth eased somewhat in the month.”

Mr Willox believes that even though the Australian economy is growing relatively strong, the current contraction in Australian manufacturing is comparable to that being experienced by manufacturers in the recession-hit Euro zone.

“Spurred in part by their lower currency, manufacturing is faring more strongly in the United States despite operating in a considerably weaker domestic economy than Australian manufacturers,” Mr Willox added.

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