The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) dropped by 9.5 points to 46.9 in August, breaking the manufacturing sector’s 13-month period of unbroken expansion.

Six of the seven manufacturing activity sub-indexes contracted in August, with production (down 9.4 points to 43.0), employment (down 11.9 points to 44.6), exports (down 14.8 points to 44.7), deliveries (down 16.4 points to 46.2) and sales (down 14.1 points to 45.7) all slipping from expansionary results in July. More reassuringly, new orders continued to grow in August, if at a slower pace (down 7.3 points to 51.5), suggesting a correction to a mismatch between production and sales. Readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease.

“At 46.9 the August result for the Australian PMI is the lowest since June 2015 when it was 44.2 points,” said Ai Group Chief Executive, Innes Willox. “These low results ‘bookend’ a run of 13 months of expansion (July 2015 to July 2016 inclusive). A sharp fall in food & beverages in August, which had been the mainstay of recent growth, was a major factor in the correction seen in manufacturing activity. Conditions also deteriorated for manufacturers of non-metallic mineral products and the recent growth spurt in the metals products sub-sector came to an end.”

Five of the eight manufacturing sub-sectors remained in expansion (that is, above 50 points in three-month moving averages): printing & recorded media (up 6.4 points to 63.6), metal products (up 1.1 points to 55.9), petroleum & chemical products (down 2.5 points to 54.8), non-metallic mineral products (down 3.3 points to 53.6) and wood & paper products (down 7.6 points to 52.0).

The large machinery and equipment sub-sector continued to contract in August, with the sub-sectors index largely unchanged at 48.2 points. Respondents from this sub-sector in the Australian PMI reported weaker demand, some delay in large projects and weakness in the agricultural sector as reasons for the continued decline. Food, beverages & tobacco slipped into contraction (down 4.0 points to 48.7), joining textiles & clothing (down 1.8 points to 46.3).

The input prices (down 0.3 points to 58.7) and wages (down 3.5 points to 56.2) sub-indexes remained strong, while selling prices reversed the recent expansionary trend to be stable (down 4.4 points to 50.3).

“For manufacturing as a whole, despite gains in a number of other sub-sectors, production, sales, employment and stocks all fell in August,” Willox added. “Continued growth in new orders is a ray of optimism for a sector keen to avoid this correction becoming a downturn. The continuing patchiness both of the manufacturing sector and the broader economy underscores the importance of lifting confidence and improving policy settings in areas such as workplace relations, taxation and budgetary policy.”