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Key manufacturing index shows industry slump is slowing down

March 6, 2013 • News

The latest Performance Manufacturing Index (PMI) from the Australian Industry Group showed that the manufacturing slump is easing, as the index rose by 5.4 points from 40.2 in January to 45.6 in February.

The figure still represents a contraction, but at a slower pace from a month ago.

Picture: Pixomar / www.freedigitalphotos.net

Picture: Pixomar / www.freedigitalphotos.net

A NASDAQ report quoted AIG’s chief executive Innes Willox as saying “Although remaining under 50 points (indicating contraction), this was the best monthly result for the Australian PMI since last August and it was encouraging to see some easing in the severe pressures facing manufacturing.”

The other key findings of the February PMI indicated that the manufacturing sector is showing signs of renewed momentum as the new orders, production and employment sub-indices continue to improve in February, even though figures are still below 50.

The pace of contraction in manufacturing new orders slowed down, with the sub-index rising by 2.4 points to 41.8. Exporters are still challenged by the high Australian dollar and the weakness of the global economy as reflected in the critically low manufacturing exports sub-index, which rose by just 0.1 points to 31.2 in February.

The production sub-index rose from 40.4 to 46.6, with the capacity utilization for manufacturers increasing to 72.8% in February (not seasonally adjusted).

Meanwhile the employment sub-index rose to 47.5, its highest reading since June 2012 and an increase by 7.4 points. Employment expanded this month in the wood & paper products; food, beverage & tobacco products and petroleum, coal, chemical & rubber products sub-sectors.

The food, beverage & tobacco products and the wood & paper products sub-sectors expanded in February, while there was a significant decline in the printing & recorded media sub-sector, as well as a slowdown in the non-metallic mineral products and machinery & equipment sub-sectors.

Manufacturing inventories contracted again in February but at a much slower rate compared to the previous month. The fall in supplier deliveries also persisted for a 12th consecutive month in February, albeit at a slowing pace.

The Australian economy is recovering from an over reliance on mining investments that were prioritized over a broader number of growth drivers says the NASDAQ article. The consequent rebalancing of the economy from mining to housing and non-mining sectors will most likely continue throughout the year.

However manufacturing will continue to battle several factors before it can finally recover. Selling prices continued to fall, but at a slower rate, in February. The selling prices sub-index increased 4.3 points to 44.3. According to the index summary the falling trend is a sign that widespread price discounting is probably still happening as manufacturers struggle to keep up in the weak demand market and against the strengthening Australian dollar.

“Despite low official interest rates, conditions in manufacturing remain very testing with households not yet ready to loosen the purse strings and businesses still delaying investment in machinery and equipment,” Mr. Willox said.

“Flat government spending and the export challenges of high exchange rates are additional barriers to sales growth,” he added.

 

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