Australian PMI: Stockpiling boost for manufacturing in March

The expansion – which was slightly unexpected in the midst of the escalating COVID-19 pandemic and emerging recession – was almost entirely attributed to a huge surge in demand for manufactured food, groceries and personal care items, as shoppers stocked up on processed food, toilet paper, cleaning products and other household essentials. The local manufacturing businesses that make these goods are in sectors (mainly ‘food & beverages’ and ‘chemicals’) that account for a large proportion of Australian manufacturing and make relatively large contributions to the headline Australian PMI index.

“Australian manufacturers are being impacted in very different ways by the COVID-19 outbreak,” said Ai Group Chief Executive Innes Willox. “Some are stepping up to meet surges in purchasing from consumers, businesses and the health sector. Others are finding that disrupted supply chains into export markets and from suppliers of inputs are reducing sales and stifling production. Others are seeing sales dry up as their customers reduce orders to reflect their own demand and supply conditions.”

Five of the seven activity indices in the Australian PMI expanded in March, with sales (up 13.4 points to 56.5), production (up 11.4 points to 51.8), new orders (up 16.2 points to 57.9) and employment all rebounding into expansion due to increased food and other household-related consumable manufactured goods. Finished stocks (up 0.7 points to 49.2) were stable, with declines in food inventories but larger stockpiles elsewhere, while deliveries (up 1.8 points to 48.3) and exports (up 0.1 points to 44.6) contracted due to coronavirus-related freight disruptions.

There was a clear divergence between the manufacturing sectors in March, with the food & beverages (unchanged at 59.0 points) and chemicals (up 1.2 points to 50.1) sectors reporting a spike in sales, production and new orders, while the other manufacturing sectors all contracted in difficult trading environments.

The input prices index increased by 6.6 points to 64.0 in March, with increased lead times and prices for air freight a concern for both importers and exporters. The selling prices index rose by 4.6 points to a relatively strong expansion at 55.0. With the exception of the metal products sector, selling prices rose across all manufacturing sectors in March and were especially elevated for food & beverage manufacturers as local demand surged.

“The aggregate impact for the manufacturing sector in March was a slight increase in production, strong growth in sales and employment and a sharp rise in new orders,” added Willox. “The situation is changing rapidly and the later responses to the March survey were more likely to be negative than the earliest responses received. With over 920,000 jobs at stake, and much of the sector critical to the supply of food, sanitisation and health needs and the infrastructure and supply chains that support them, every effort should be made to keep manufacturing businesses going for as long as they can operate safely.”