Australian PMI for July down 7.6 points to 42

THE manufacturing sector stumbled into the new financial year with the Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) for July down 7.6 points to 42.

Readings below 50 indicate a contraction in activity.

The July Australian PMI result reversed the improvement seen in the sector in the previous month.  It was the 25th consecutive monthly contraction in manufacturing activity.

"The Australian PMI shows Australian manufacturers have had a poor start to the new financial year and have failed to build momentum after the promising uptick in June." Said AI Group Chief Executive Innes Willox. 

"Manufacturers are telling us that, while the fall in the Australian dollar and the May interest rate cut have been extremely welcome, they have not yet been enough to turn around a very challenging business environment, locally and internationally. 

"In fact, the drop in the currency has fueled higher prices for imported inputs without any real corresponding improvement in stronger exports into what remain fiercely competitive markets.

Mr Willox also pointed to domestic demand and confidence being depressed as issues.

"There are particular challenges for manufacturers selling into construction supply chains, or bidding for public sector contracts, and, most recently, demand for mining services has slumped.  Concerns are also evident about the timing of this year's federal election with related policy uncertainty in key areas." 

"This is causing many businesses to further postpone their investment decisions."

Australian PMI: Key Findings for July:

  • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) fell by 7.6 points to 42.0 in July 2013.
  • In three-month moving average (3MMA) terms, five sub-sectors improved in July, while three worsened.  Food & beverages was the only sub sector to expand (sub-sector index above 50 points).
  • The production sub-index in the Australian PMI fell sharply, by 12.5 points, to 37.7 points.
  • The new orders sub-index dropped by 9.5 points to 40.5 points in July, while the exports sub-index deteriorated by 4 points in July, to 26.4 points.  The exports sub-index is well below 30 points again and close to its recent record lows.  The benefits of the recent drop in the Australian dollar are yet to filter through to an improved export performance.
  • The seasonally adjusted input costs sub-index in the Australian PMI jumped 14.5 points to 70.9 points, its highest level since October 2011.  The lower dollar may have contributed to a spike in input costs for manufacturers in July.
  • A third of Australian PMI survey respondents in July noted the extreme weakness in local demand and/or consumer confidence and 15% identified the looming election and political uncertainty as detracting from investment.