More evidence of a weakening economy today with the latest Performance of Manufacturing Index (PMI) read for Australia showing a further decline in February.
The Australian Industry Group Australian Performance of Manufacturing Index fell a further 1.1 points to 44.3 points in February. This marked four consecutive months of contraction in Australian manufacturing for the first time since 2014 and was the lowest monthly result in almost five years(seasonally adjusted).
Results below 50 points indicate contraction with lower results indicating a faster contraction in the month. The indices for all manufacturing sectors deteriorated in February and all except food&beverages recorded a contraction in the month (results under 50 points, trend). The production, sales, new orders and exports indices fell further into contraction in February and were firmly negative.
This was the first month in which respondents to the Australian PMI reported the effects of the new coronavirus ‘COVID-19’.
Respondents said that travel restrictions in response to COVID-19 are already denting exports of Australian manufactured goods, particularly consumable items into China. The ‘heavy’ manufacturing sectors (equipment, machinery, metals) reported supply chain disruptions due to factory and freight closures in China.
Locally, respondents remain concerned about drought, weak demand from the construction sector and the generally slow pace of the economy.
Despite weak new orders and production, the employment index improved in February to be broadly stable (and above its own long-run average).
Looking ahead, the new orders index in the Australian PMI plunged to its lowest level since July 2013. This suggests a very sharp deterioration in new orders and even weaker demand conditions ahead for manufacturers
The Australian Industry Group Australian Performance of Manufacturing Index is a 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 indicates the strength of the expansion or decline.
Australian PMI results are based on responses from a national sample of manufacturers. The Australian PMI uses the ANZSIC industry classifications for manufacturing sectors and sector weights derived from ABS industry output data. Seasonal adjustment and trend calculations follow ABS methodology.
