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Rate of manufacturing activity decline slowed

Australian PMI: Fall in activity eases slightly

The pace of decline of manufacturing activity eased in May, with the Australian Industry Group – PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) up by 7.4 points to 37.5.

While the index remains well below the 50-point mark separating expansion from contraction, it is now higher than it has been for the past seven months.

“The lift in the Australian PMI in May brings it into much closer alignment with the direction and strength of global PMI’s. The slowing of falls in new orders and production across the sector in this month’s data may indicate that stimulatory fiscal and monetary policy is having a stabilising effect,” Ai Group chief executive Heather Ridout said.

“However, while six of the twelve sub-sectors experienced an easing of decline in activity, manufacturing has completed a yearlong run of falls in activity and production. Uncertainty is pervasive in the industry and confidence remains very fragile.”

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said that the May Australian PMI shows that manufacturers are feeling the full effect of deteriorating markets on demand for their products and their prices.

“Lower prices and demand are putting additional pressure on margins and, though this month’s data suggests that input costs are stabilising, more needs to be done to reduce unit costs if profitability is not to slide further.

“Business plan reviews, a focus on cost reduction and ongoing search for efficiency are critical strategies as the current downturn works itself through the sector,” Billings said.

Key Findings for May

· The seasonally adjusted Australian Industry Group-PricewaterhouseCoopers Australian PMI rose by 7.4 points to 37.5. This is still well below the 50-point mark separating expansion from contraction, but is its highest point in the past seven months.

· Six sectors, out of twelve, saw the rate of decline in activity improve in comparison with April.

· The seasonally adjusted new orders sub-index rose strongly by 12.7 points to 39.4 in May, but remained well below 50, indicting ongoing falls in new orders.

· A solid proportion of firms cited weak orders and sales as their key concern, with some pointing to weak demand from the resources, construction and retail sectors.

· The sharp fall in inventories may indicate that production could be set to recover in the near future.

· Exports fell for the ninth consecutive month. · Manufacturing activity fell in all states.

The largest falls were recorded in New South Wales and South Australia.

The Australian Industry Group – PricewaterhouseCoopers Australian Performance of Manufacturing Index 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 for the third month of each quarter are based on an expanded sample (in excess of 500 companies).

Results for the other months are based on responses from over 200 companies.

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