Australian PMI® - Manufacturing softens in November

1 December 2010

Manufacturing activity softened in November under the ongoing impact of the strong Australian dollar, rising interest rates and skill shortages, with the latest Australian Industry Group - PwC Australian Performance of Manufacturing Index (Australian PMI®) falling 1.8 points to 47.6 (readings below 50 indicate a contraction in activity).

The expansion of seven of the 12 manufacturing sub-sectors in the month, including in textiles, was not enough to offset the falls in the other areas. New orders across manufacturing continued to weaken in November.

Australian Industry Group Chief Executive, Heather Ridout, said: "The continued softness in the Australian PMI® underscores the difficult conditions confronting the industry. In particular the ongoing weakness in the forward-looking new orders sub-index does not suggest that an early pick-up in activity is in prospect. Clearly, factors including the sustained high dollar, higher interest rates and skill shortages, together with the caution around spending on the part of business and consumers, are dampening the outlook for the sector with implications for the broader economy.

"It is clear that the much-talked about multi-speed economy is taking hold, posing major challenges for trade exposed sectors which in turn poses major challenges for government. Indeed, the number one economic and social challenge now facing the Federal Government is to manage the unfolding minerals boom in a way that does not put at risk the objective of retaining a diversified and balanced economy," Mrs Ridout said.

PwC Global Head of Industrial Manufacturing, Graeme Billings, said: "The pressure on domestic manufacturers is intensifying and businesses are searching for further cost savings. This is putting an even-higher premium on value-enhancing business improvements and innovation. At the same time, the exploitation of opportunities for value enhancement are constrained by growing shortages of skilled labour."

Australian PMI® Key Findings for November:
  • The Australian Industry Group - PwC Australian Performance of Manufacturing Index (Australian PMI®) fell 1.8 points in November to 47.6. The strong Australian dollar, rising interest rates and skill shortages restricted growth in the month.
  • Five sub-sectors declined in the month - the most significants falls were in the basic metals and machinery & equipment sub-sectors.
  • A rise in new orders was largely behind the strong result in the paper, printing & publishing sub-sector. This increase, together with the positive contributions from other sub-sectors experiencing growth in the month, was not enough to lift the manufacturing sector into the black in November.
  • The new orders sub-index remained relatively stable at a level of 43.3, indicating ongoing contraction.
  • Employment was also down in the month.

Background

The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) 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 are based on responses from over 200 companies from a rotating sample of manufacturers.

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