August 2013

australiaN pmi
AUG

Manufacturing contraction eases in August

Key Findings
The seasonally adjusted Australian Industry Group Australian

65 60

AUST

46.4

55 50 45 40 35

Diffusion Index (Points)

eurozone pmi

Performance of Manufacturing Index (Australian PMI) improved by 4.4 points to 46.4 in August 2013. August marked the 26th consecutive month of contraction in the Australian PMI (readings under 50 points indicate contraction). This is the longest period of contraction in the 21 year history of the Australian PMI, which commenced in September 1992. The production, employment and new orders sub-indexes all picked up in August, but remained in mild contraction (below the 50 point level that separates expansion from contraction). Local demand and orders remain patchy, with some growth spots emerging in NSW and from essential maintenance contracts. The majority of respondents continue to characterise the local economy as lacking in activity and confidence, over and above the usual winter lull. Around 10% of respondents said the federal election (on 7 September) is an additional source of uncertainty at present, down from 15% who made similar comments in July. The effect of the recent devaluation in the Australian dollar became more visible in the Australian PMI in August. So far, the lower dollar is pushing up prices for imported inputs, with the input price sub-index hitting its highest level in August (75.1 points) since April 2011 (79.9 points). The lower dollar is not yet showing up in stronger exports. A small number of respondents noted an improvement in local orders that they attributed to the lower dollar (through better competitiveness against imports).

60
Increasing

JULY

55 50 45

30

JULY
Decreasing

65 60 55

40 35 30 25 20
Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 June 13 July 13 Aug 13

usa ISM PMI

USA

50

55.4
JUNE

45 40 35 30

Australian PMI

3 month moving average

JULY

65 60

50.3

55 50 45 40 35

Sectors

In three month moving average (3mma) terms*, three sub-sectors

Decreasing

Increasing

EURO

JAPANESE PMI

indexes moved above 50 points in August, up from just one in July. These were: food, beverages and tobacco; printing and recorded media; and petroleum, coal, chemicals and rubber. The food, beverages and tobacco sub-sector saw stronger growth in new orders and production in August, with employment also moving above 50 points into expansion. This sub-sector appears to be picking up stronger local orders as the dollar falls. Its input prices also jumped higher however, as imported inputs increased. The large metal products sub-sector is showing a particularly sharp rate of contraction at present, with very low index levels over several months. The index for this sub-sector improved in August (in original and 3mma terms) but remains at weak levels. Among the smaller sub-sectors, the wood and paper products and the textiles, clothing and other sub-sectors contracted at a worsening pace in August (in original and 3 mma terms).
*All sub-sectors are reported as a three month moving average because these monthly sub-sector data are inherently volatile.

Food, beverage & tobacco products Textiles, clothing & other manufacturing Wood & paper products Printing & recorded media Petroleum, coal, chemical & rubber products Non-metallic mineral products Metal products Machinery & equipment Australian PMI

JUNE

30

JULY

65 60

50.7

55 50 45 40 35

10

20

30

40

50

60

70
Aug 13

80

90

100

JAPAN

Diffusion Index 3 month moving average

July 13

JUNE

30

Production Diffusion Index (Points)

Production and Capacity Utilisation

70 65 60 55 50 45 40 35 30 25 20
Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 June 13 July 13 Aug 13

80

6 65 5

points higher in August, to 47.1 points (seasonally adjusted). Production expanded in August (with sub-index readings above 50 points) in food, beverages and tobacco and in non-metallic mineral products (mainly building products). Comments from respondents indicate the weak (but welcome) expansion in the production of building-related products in August was probably concentrated in NSW. All other sub-sectors indicated a contraction in production in August, relative to July. Capacity utilisation across the manufacturing sector improved by 2.2 percentage points to 71.9% in August, which was its highest level since February 2013 (72.8%, unadjusted).

Capacity Utilisation (%)

The production sub-index in the Australian PMI jumped 9.4

Capacity Utilisation

JULY
75
6 60 0

65 60

5 55 5

Production

70

CHINESE PMI

47.7

55 50 45 40 35

50 5 0

CHINA
65

45 4 5

40 4 0

35 3 5

60

JUNE
30 30

30

New Orders and Exports

65 60 55
Diffusion Index (Points)
Increasing

The new orders sub-index in the Australian PMI improved by 3.8

points to 44.2 points in August, regaining some but not all of the large drop in new orders seen in July (down 9.5 points to 40.5 points, seasonally adjusted). The new orders sub-index expanded (values above 50 points) in the food & beverages and non-metallic minerals sub-sectors. It remained below 50 points for all other sub-sectors (unadjusted data). Respondents said orders from business and government customers are still slow, but a small number noted a pick-up from construction and maintenance-related contracts in NSW. The exports sub-index improved by 1.9 points to 28.3 points in August, but it remains at historically low levels at less than 30 points despite the drop in the Australian dollar since May. Respondents said price competition remains fierce for exporters as well as for those competing with imports.

What is the AUSTRALIAN PMI?

The Australian Industry Group 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. Survey results are based on a rotating sample of manufacturing companies eachmonth. More information can be obtained from the Ai Group website www.aigroup.com.au.

50 45
Decreasing

40 35 30 25 20 15
Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 June 13 July 13 Aug 13 Exports New Orders

Employment and Average Wages

75 70 65
Diffusion Index (Points)

Average Wages
Increasing

The seasonally adjusted employment sub-index in the Australian

Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 June 13 July 13 Aug 13

PMI improved by 3.6 points to 46.3 points in August. This sub-index has been in continuous contraction (below 50 points) since October 2011 (50.8 points for one month only) and before that, since June 2010. This correlates closely with ABS data that shows national manufacturing employment fell by 12.5% (134,000 jobs) between early 2008 and May 2013, to an historical low of 940,000 manufacturing jobs. Wages growth moderated to 59.5 points in August (not seasonally adjusted) after spiking higher in July (68.7 points, reflecting the annual increase in minimum wages and this years superannuation increases). Wage rises are gradually moderating, in line with weak labour demand and lower consumer inflation.

60 55 50 45 40 35 30 25 20
Employment

Decreasing

CONTACT
Innes Willox Chief Executive Ai Group Tel 03 9867 0111
Increasing

Finished Stocks and Deliveries

65 60
Diffusion Index (Points)

Manufacturing inventories were broadly stable in August (50.2

Input costs and selling prices

90 80
Diffusion Index (Points)

The input costs sub-index spiked sharply higher in August, rising

Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 June 13 July 13 Aug 13

points) after contracting in July (46.8 points) and expanding in June (52.9 points, seasonally adjusted). Inventories expanded or were stable in August in six of the eight manufacturing sub-sectors. Inventories contracted in metal products and in textiles, clothing and other manufacturing (indexes under 50 points, unadjusted). The inventory sub-index remains at very low levels in the metals sub-sector, indicating the continuation of de-stocking in this struggling sector. The supplier deliveries sub-index was broadly unchanged in August, at 47.1 points (down 0.8 points from July). This sub-index has been in continuous contraction (under 50 points) since February 2012.

55 50 45 40 35 30

INTERNATIONAL PMI DATA

Decreasing

Markit Economics www.markiteconomics.com

Deliveries

Finished Stocks

4.2 points to 75.1 points (unadjusted). This was the highest level for this sub-index since April 2011. Comments from respondents indicate this jump in input costs is mainly due to rising prices for imported inputs, due to the lower Australian dollar. The selling prices sub-index was broadly unchanged in August, at 44.1 points (down 0.6 points from July, unadjusted). Selling prices fell for the 29th consecutive month in August, with sub-index readings consistently below 50 points since March 2011. Respondents note that heavy price discounting among Australian manufacturers is still occurring in response to the very weak local demand environment. Manufacturers in metals and related sub-sectors continue to face fierce price and product competition from imported products, despite the lower Australian dollar.

70 60 50

30 20
Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 June 13 July 13 Aug 13

Decreasing

40

Increasing

CIPS Australia www.cipsa.com.au

Input prices

Selling prices

The Australian Industry Group, 2013 This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation, no part may be reproduced by any process or means without the prior written permission of The Australian Industry Group. Disclaimer The Australian Industry Group provides information services to its members and others, which include economic and industry policy and forecasting services. None of the information provided here is represented or implied to be legal, accounting, financial or investment advice and does not constitute financial product advice. The Australian Industry Group does not invite and does not expect any person to act or rely on any statement, opinion, representation or interference expressed or implied in this publication. All readers must make their own enquiries and obtain their own professional advice in relation to any issue or matter referred to herein before making any financial or other decision. The Australian Industry Group accepts no responsibility for any act or omission by any person relying in whole or in part upon the contents of thispublication.
AIG13402

Australian PMI
August 2013 July 2013 Monthly change Direction Rate of change Trend ** (Months) 46.4 42.0 +4.4 Contracting Slower 26 Production 47.1 37.7 +9.4 Contracting Slower 2 Employment 46.3 42.7 +3.6 Contracting Slower 22 New Orders 44.2 40.4 +3.8 Contracting Slower 2 Inventories 50.2 46.8 +3.4 Expanding From contraction 1 Supplier Deliveries 47.1 47.9 -0.8 Contracting Faster 18 Input Prices 75.1 70.9 +4.2 Expanding Faster 135 Exports 28.3 26.4 +1.9 Contracting Slower 13 Selling Prices* 44.1 44.7 -0.6 Contracting Faster 29 Average Wages* 59.5 68.7 -9.2 Expanding Slower 52 Capacity Utilisation (%)* 71.9 69.7 +2.2 Increase - Australian PMI
Seasonally adjusted, *except where indicated. Further Information Results are based on responses from around 200 companies from a rotating sample of manufacturers. An evaluation of the Australian PMI as well as other economic research and analysis can be obtained from the Ai Group website at http://www.aigroup.com.au/economics. Results for capacity utilisation, average wages and output prices to June 2007 based on quarterly surveys. From this point data will be collected in the monthly PMI survey. ** Number of months moving in current direction. New monthly seasonal adjustment factors were applied in April 2013. New industry classification applied from December 2012 (and back-dated) based on the ANZSIC 2006 coding system and 2011-12 weights. Visit http://www.aigroup.com.au/economics for further economic analysis and information.