Australian PMI®: Manufacturing growth tentative despite lift in new orders

Manufacturing activity grew for the third consecutive month in October despite losing some of the previous month's gains according to the latest Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®). The seasonally adjusted index remained relatively steady in October, down by 0.3 points to 51.7 (above the 50 point level separating expansion from contraction).

The October growth was driven by a substantial lift in new orders and modestly higher production. However, further falls in employment detracted from manufacturing growth in October. Across manufacturing, the improvements of the past few months slowed in October with six of the twelve sub-sectors reporting growth, compared with seven in September.

Ai Group Chief Executive, Heather Ridout, said: "The recovery in manufacturing activity remains tentative, with exports still soft, policy stimulus easing and unemployment expected to temper consumer demand. The high exchange rate is adding to the pressures on manufacturers who export or compete with imports and will ease pressure on prices. In this regard, the high dollar is reducing the need for a significant tightening of monetary policy.

"While the lift in manufacturing activity over the past three months and rising new orders in particular are welcome, growth is not accelerating and there remains a considerable way to go before we recover the ground lost over the past year. A period of sustained improvement in new orders and production will be needed to reverse the continuing fall in manufacturing employment," Mrs Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said: "Signs of improvement in market conditions facing manufacturers bode well for revenue growth. However, falling sales prices and continuing growth in input costs and wages will offset the positive impact of better sales volumes on profit margins. The higher exchange rate reinforces the need for firms to focus on maximising cash flow and reducing costs by lifting productivity and further engagement with global supply chains," Mr Billings said. 

Australian PMI® Key Findings for October: 

• The seasonally adjusted Australian Industry Group-PricewaterhouseCoopers Australian PMI® was down slightly by 0.3 points in October to 51.7, still above the 50 point mark separating expansion from contraction. 
• October was the third consecutive month of growth in manufacturing activity driven mostly by a lift in new orders (up 6.7 points to 57.7) and higher production. 
• Six out of twelve sectors reported growth, down from seven sectors in September. 
• Growth was particularly strong among the textiles, construction material and transport equipment sectors but activity fell in the food and beverages, paper, printing and publishing sectors following rises in recent months. 
• The effects of the downturn, particularly on employment, continue to impact on growth. Employment fell in October with the sub-index down 5.1 points to 44.6. 
• Average wages growth eased in October with the index registering a drop of 3.1 points to 53.9. 
• The strong Australian dollar is adding pressure on manufacturers who export and their ability to compete with imports.

Download the full October 2009 Australian PMI®.


Further Comment:
Heather Ridout, Ai Group: (02) 9466 5504
Graeme Billings, PricewaterhouseCoopers: (03) 8603 3007 or 0408 572 729
Media Inquiries: Tony Melville: (02) 6233 0700
Nina Anderson, PricewaterhouseCoopers: (03) 8603 3573 or 0400 033 937

Background: The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) is a seasonally adjusted national composite index based on the diffusion indices for production, new orders, deliveries, inventories and employment with varying weights. An Australian PMI® reading above 50 points indicates that manufacturing is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. Australian PMI® results are based on responses from over 200 companies from a rotating sample of manufacturers.