Australian PMI: Manufacturing stabilises in September

Readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease. September’s stabilisation in the Australian PMI was heavily influenced by activity in the food & beverages sub-sector, which recovered after contracting in August (up 4.1 points to 52.8). The large machinery & equipment sub-sector also moved out of contraction (up 4.6 points to 52.8).

Three of the other manufacturing sub-sectors maintained August’s expansion (that is, above 50 points in three-month moving averages): printing & recorded media (down 0.8 points to 62.8), metal products (down 4.6 points to 51.3), and petroleum & chemical products (down 2.1 points to 52.7). The non-metallic mineral products (down 7.6 points to 46.0) and wood & paper products (down 3.4 points to 48.6) sub-sectors slipped into contraction in September.

“The manufacturing sector avoided a deeper fall in September after the sharp drop recorded in August,” said Ai Group Chief Executive Innes Willox. “The food and beverages sub-sector was the major swing factor with a bounce back after an inventory-related slump in the previous month. The broadly stable result saw growth in sales and production offset by a further drop in employment and a contraction in new orders. Mixed results across the manufacturing sub-sectors underline the fragility of activity within manufacturing and indeed across the broader economy.”

Three of the seven manufacturing activity sub-indexes expanded in September, with production (up 9.6 points to 52.6), deliveries (up 10.2 points to 56.4) and sales (up 5.7 points to 51.4) all recovering from steep contractionary results in August, while exports stabilised (up 5.3 points to 50.0). New orders slipped into contraction in September, declining by 3.2 points to 48.3.

The input prices (up 1.3 points to 60.0) and wages (up 0.7 points to 56.9) sub-indexes remained strong, adding to cost pressures partly passed on by a small increase in the selling prices sub-index (up 2.0 points to 52.3).

“With business investment the major missing ingredient to a more comprehensive lift in domestic activity, there is a clear need for policy action in this area,” said Willox. “In considering the Government’s Enterprise Tax Plan, federal parliamentarians should consider the material improvement to the investment outlook that would come from a reduction in the company tax rate.”