August lockdowns cripple Australia’s manufacturing recovery, according to report

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Image Credit:AI Group

Australia’s manufacturing sector has dropped by 9.2 points to 51.6 in August, ending a prolonged period of recovery throughout 2021 due to the widespread lockdowns in August.

According to the Australian Industry (Ai) group’s latest report, August saw a steep retreat from the healthy expansion in manufacturing performance that has characterised most of this year.

Of the six manufacturing sectors in the Australian PMI, food and beverages (up 1.7 points to 56.5) was the only one that expanded at a faster pace in August.

The related sectors of chemicals (down 8.5 points to 56.4) and TCF, paper & printing (down 24.4 points to 53.3) also expanded, albeit at a slower rate.

Machinery & equipment manufacturing dropped down 11.3 points to 50.4, while metal products – down 16.2 points to 45.5 – and building materials manufacturing – down 15.8 points to 42.4 – contracted ‘due to restricted manufacturing and construction activity in NSW and Victoria’.

According to Ai Group’s survey, the activity indices in the Australian PMI suggest that in August, average sales (down 11.8 points to 49.9) and production (down 11.6 points to 50.2) levels paused but exports (down 8.5 points to 45.1) and deliveries from suppliers (down 18.3 points to 41.3) both contracted.

The survey also found that new orders (down 5.4 points to 57.1) and inventories (down 0.1 point to 55.0) continued to expand, suggesting that sales are being delayed.

The average wages index also lost some steam in August (down 6.7 points to 62.4) following a large rise in July – the month in which most manufacturing sector wage rises typically occur.

Commenting on Ai Group’s key findings for August, Chief Executive Innes Willox said:

“Lockdowns across the country, particularly in NSW and Victoria were the major detractor from performance with ongoing strength outside of these states sufficiently strong to maintain the national performance in positive territory,” he said.

“The building materials and metal product sectors saw the steepest declines due in large part to the impacts of lockdown measures on the construction sector.

“The food & beverage and chemicals product sectors continued to grow strongly while the machinery & equipment sector barely held onto recent gains.

“Employment grew slightly across the manufacturing sector as manufacturers built up stocks rather than cut back on production.

“Looking forward, there was positive news in the further growth in new orders in August and the easing of restrictions on construction will go some way to rebuilding confidence or at least hope among its suppliers,” Mr Willox concluded.

Image Credit:<a href=”https://cdn.aigroup.com.au/Economic_Indicators/PMI/2019/PMI_Aug_2019_79670h.pdf”>AI Group </a>
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