Australian manufacturers must deepen their global supply chain links to ride out slowing consumer demand on the local market, an
Australian manufacturers must deepen their global supply chain links to ride out slowing consumer demand on the local market, an economist warns.
The monthly Australian Industry Group-PricewaterhouseCoopers Performance of Manufacturing Index (PMI) was unsurprisingly stagnant in September, up just 0.2 points to 47.2 but still remaining below the key 50.0 level separating expansion from contraction.
PricewaterhouseCoopers Global Leader of Industrial Manufacturing Graeme Billings says manufacturing remains trapped between the pincers of declining new orders and rising costs.
“Given the continuing uncertainties in the world economic outlook and its likely flow-on through to manufacturers’ international and domestic markets, these pressures on profitability are unlikely to ease over the next few quarters, notwithstanding some easing in the costs of fuel,” he says.
“In the absence of any short-term improvement in the economic outlook, businesses need to continue with stringent cost management and to maintain a focus on building long-term profitability through broadening of market and product scope, deepening global supply chains and strengthening their skills bases.”
According to Australian Industry Group (Ai Group) Chief Executive Heather Ridout, the PMI’s inactivity is a reflection of softening consumer demand in Australia and the weakness of the world economy, particularly in Australia’s largest export markets.
She says signs of weaker growth in China are compounding the deterioration.
“The ongoing decline in new orders reported in the Australian PMI suggests that the weakness in manufacturing is likely to persist, particularly with employment growth showing signs of losing momentum,” she says.
Australian PMI Key Findings for September:
- Manufacturing activity fell for a fourth successive month in September.
- Driving this month’s result are the lagged effects of higher official and commercial interest rates continuing to squeeze consumer and housing-related demand. In addition, slower trading partner growth has compounded the impact of the high exchange rate on demand for Australian manufactures in both domestic and overseas markets.
- Production fell again in September, though at a slightly slower rate than in August, in line with continued declines in new orders.
- Input and wages costs grew strongly again in September, while selling price growth eased mildly, with the net effect a compression of profit margins.
- Employment fell for a seventh consecutive month.
- Inventories rose marginally and supplier deliveries fell slightly. Exports rose solidly.
- Manufacturers continued to cite positive effects on activity from mining related demand. Key negatives were: weak domestic demand; global instability; the soft housing sector; raw material costs; staff turnover; and import competition.
- Activity fell in all states except Western Australia.