Australia’s private sector sees slower contraction in January, says Judo Bank

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At the onset of 2024, Australia’s private sector faced continued challenges, with the Judo Bank Flash Australia Composite PMI Output Index reporting a reading of 48.1 in January, indicating a fourth consecutive month of business activity decline.

This indicated the fourth successive month of a downturn in business activity, albeit occurring at the most gradual pace within the current sequence.

The easing contraction was particularly evident in the service sector, as the Judo Bank Flash Australia Services PMI Business Activity Index climbed to 47.9 in January from 47.1 in December.

“The price indicators eased slightly through January, although there are signs that shipping disruptions and the local wharf dispute are starting to impact domestic supply chains, with manufacturers’ suppliers’ delivery times extending in the month,” stated Warren Hogan, chief economic advisor at Judo Bank.

While the sector continued to contract, the slower pace suggested a potential turnaround. Improved sentiment within the Australian service industry, coupled with hopes of economic conditions improving in 2024, contributed to the improved outlook.

Similarly, the Judo Bank Flash Australia Manufacturing PMI rose to 50.3 in January, a significant improvement from December’s 47.6.

This reading marked the first improvement in manufacturing sector conditions in 11 months, although marginal.

The manufacturing sector faced challenges such as shipping delays due to port congestions and conflicts in the Middle East, leading to a marked deterioration in lead times.

Despite ongoing challenges, employment levels continued to rise, primarily driven by the service sector. Businesses expressed optimism with the Future Output Index posting the highest reading since August 2023.

“While the manufacturing sector was the weakest aspect of the survey in late 2023, January has seen a significant jump in output and new orders. This has reduced concerns that a potential recession in the manufacturing sector could lead to a broader economic downturn,” Hogan remarked.

The prospect of lower interest rates in 2024 contributed to this positive sentiment, showcasing a growing belief that economic conditions could improve.

However, concerns lingered as costs continued to rise at an above-average rate due to increasing shipping and raw material prices.

While charge inflation eased to the lowest since March 2021, firms remained cautious, reining in price increases to stimulate sales.

The volume of backlogged work shrank for the nineteenth consecutive month, reflecting the sustained fall in new orders.

Despite this, the pace of contraction in backlogged work eased, hinting at a potential stabilisation in the coming months.