Manufacturing contraction… again

Fri, 01 Apr 2011 03:14:20 +0000

Performance of Manufacturing

The Performance of Manufacturing index fell from 51.1 to 47.9 in March – marking the sixth contraction in the sector in the space of seven months
Key sub-indexes were mostly weak with new orders, exports and employment still contracting. The employment sub index was at its lowest level in 21 months.

What does it all mean?

The latest reading on the manufacturing sector has certainly been disappointing, especially given the modest improvement in the prior month. The manufacturing sector has now contracted for six out of the past seven months. In fact the key forward looking sub indices like new orders is once again contracting, while the employment sub index is at its lowest levels in just shy of two years. Even manufacturing exports are contracting at a faster pace and more importantly given the recent strength in the Australian dollar it is unlikely that activity levels will bounce back anytime soon. The lack of momentum in the manufacturing sector encapsulates what’s taking place across an array of sectors throughout the economy.
The strength of the Australian dollar is making exports less competitive but on it is also ensuring that the cost of imported goods is falling – a result which has been reflected by the slide in manufacturing input costs. On an even more encouraging note average manufacturing selling prices have risen to the best levels in over two years – albeit from a very low base. It is unlikely that a full blown recovery will take place in the manufacturing sector anytime soon but the rebuilding following the floods could support the sector in coming months.

What do the figures show?

Performance of Manufacturing Index

The Performance of Manufacturing index fell from 51.1 to 47.9 in March, marking the sixth contraction in the sector in the space of seven months.
Key activity components of the PMI were mostly weaker in March. New orders were once again contracting, while production recorded a modest improvement. The employment sub index was now contracting at an even faster pace with the index at the lowest levels in 21 months.
The production sub index rose 1.6 points to 50.3; new orders fell by 3.2 points to 49.1; the employment index fell 1.3 points to 43.7; exports fell by 1 point to 48.2; the index of selling prices rose modestly from 51 to 54.7, while input prices fell by 7.4 points to 67.8 and wages also eased marginally.

What is the importance of the economic data?

The monthly Performance of Manufacturing Index is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.

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