Australian PMI: Food and beverages underpins manufacturing expansion

Three of the six manufacturing sectors in the Australian PMI expanded in October (according to trend data), led by food & beverages (up 1.3 points to 61.8) and machinery & equipment (up 0.2 points to 54.2), which increased their pace of expansion (readings above 50 points indicate contraction in activity, with the distance from 50 indicating the strength of the increase). The chemicals sector (down 0.7 points to 52.0) expanded, albeit at a slower pace in October. Metal products (up 1.5 points to 43.5), building materials, wood & other manufacturing (down 3.4 points to 48.5) and TCF, paper & printing (up 1.1 points to 43.8) sectors all contracted.

“The broader manufacturing sector expanded in October with strong contributions from businesses in the food & beverage, chemicals and machinery & equipment sectors,” said Ai Group Chief Executive Innes Willox. “Growth in these sectors was sufficient to offset further weakness among building products, metals and TCF, paper & printing manufacturers.

“The overall pace of expansion weakened with a slower rise in employment, and a contraction in new orders overshadowing rises in sales and production. Weakness in construction was clearly a factor dampening conditions in the metals and building products sectors while continuing strength in mining assisted the machinery & equipment and chemicals sectors.”

Five of the seven activity indexes in the Australian PMI indicated expanding conditions in October, while two contracted. The exports index rose back into expansion (up 2.2 points to 51.8), with some respondents noting increased demand from the United States. New orders contracted (down 8.8 points to 48.3), raising the prospect of difficult conditions for manufacturers in the coming months.

The input prices index climbed further on top of September’s 2019 high (up 2.8 points to 74.7), with some respondents noting higher prices for imported inputs because of the lower trading range of the Australian dollar. The average wages index eased back (down 4.5 points to 59.3), indicating a lower proportion of businesses are facing wage pressures. The selling prices index dropped by 3.9 points to 45.0 in October – the lowest result since December 2018 as manufacturers struggle to pass on escalating costs.

“There are indications of a bring-forward of Christmas-related sales,” Willox added. “This, together with a slight decline in new orders will have manufacturers wary about the sector-wide performance in the coming months.”