Australian manufacturing is still contracting

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Manufacturing is not the economic engine it once was in the Australian economy. Services dominate the national economic landscape to a much greater extent – more than 70% by some accounts.

But news this morning from the AiGroup that Australia’s manufacturing sector is contracting for the 5th straight month is still disappointing. However, on the positive side of the ledger the rate of contraction improved by 1.8 points to 48.0.

AiGroup reported:

All seven activity sub-indexes were below 50 points in April, with declines in sales (down 1.5 points to 44.7), new orders (up 1.6 points to 47.4), production (up 2.7 points to 49.3), supplier deliveries (down 0.4 points to 47.2) and stock levels (up 2.5 points to 45.9) indicative of very weak local demand. Manufacturing exports ended four months of expansion (down 4.3 points to 47.5), mainly due to a decline in food and beverages exports (previously the strongest sector).

AiGroup CEO Innes Willox said it’s “weak local demand” which “continues to weigh heavily on Australian manufacturing.” He said the benefits of “strong residential construction activity, low interest rates, and the weaker Australian dollar” are being “outweighed by subdued local business investment in equipment, the ongoing drop in mining construction and the progressive closure of automotive assembly.”

But in an important note to those who are calling for an RBA cut to deal with the big drop in business investment, Willox stressed that “while another cut in interest rates may help boost demand, budgetary measures, particularly those targeting increased investment are more likely to provide the lift the domestic economy needs.”

Once again — it’s over to you Joe Hockey.

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