Australian Manufacturing Is Still Contracting

This month’s Australian Industry Group (AiG) Performance of Manufacturing Index (PMI) has just been released and it is another tale of woe for local industry.

The AiG said that the latest seasonally adjusted PMI:

“contracted again in March – down 0.7 points to 47.9 (readings below 50 indicate a contraction in activity). While new orders rose in the month (up 2.3 points to 52.3) manufacturing production fell into negative territory (49.2). Manufacturing selling prices took a tumble falling 11.4 points. The food and beverage sub-sector continued to lift in March and was one of four sub-sectors to expand.”

Australia is largely a service-based economy but this data shows that monetary policy isn’t getting to all sectors of the economy.

AiG chief executive Innes Willox said:

“Subdued local demand and the newly resurgent dollar are weighing heavily against the efforts of manufacturers to rebuild their sales base in Australia and internationally.”

He also mentioned the cost of doing business in Australia and rising input prices as a constraint and had a warning for the RBA which meets today not to be swayed by the more positive aspects of the economy.

“The Reserve Bank has signaled a more positive outlook and a hold on interest rates for 2014, but from a business perspective, the outlook is much more fragile. The much-anticipated housing recovery remains weak in most states, consumer spending on non-food goods and local services is muted, and business attitudes to investment and hiring remain cautious. In this fragile atmosphere, we need to ensure that all relevant policy settings are supportive and not hindering the rebalancing our economy requires.”

That is a very different read on the economy than is becoming the prevailing wisdom and is a warning that below the surface of what have been some fairly good numbers, risk remains.

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