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Manufacturing slumps to record depths

Australian manufacturing activity slumped to record lows in February with weakness in new orders and output leading to a particularly sharp fall in employment intentions, an industry survey showed today.

The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index (PMI) slid 4.9 points to 31.7 in February, far below the 50 threshold separating growth from contraction.

The weakness was broad based with falls in 10 of the 12 manufacturing subsectors.

The dismal result contrasts with other data recently that have been more upbeat and adds to the case for a cut in interest rates when the Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday.

The market last week scaled back the chance of any easing given solid readings on business investment and construction and hints from the central bank it might like to pause after cutting by 400 basis points in just six months.

“The growing impact of the global crisis is now being felt acutely by the manufacturing sector,” said Ai group chief executive, Heather Ridout.

“Demand for exports has fallen and domestic, business and consumer confidence is very fragile.”

The index for employment showed an alarming 9.9 point drop to 32.8, again the lowest in the history of the series.

One of the biggest drops was reported in the food and beverage sectors.

As a result, the survey’s measure of wages grew at the slowest pace since June 1998.

The survey’s measure of production fell by 2.9 points to 30.1, while capacity utilisation held at 71.1%.

The survey of 200 firms showed new orders, a leading indicator of demand, dropped 3.7 points to 28.1 in February, pointing to further weakness ahead.

Input cost growth rose slightly, while selling prices fell marginally in February.

Firms continued to run down inventories to meet current demand, rather than producing more.

— Reuters

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