Manufacturing slips back into red

A sharp fall in new orders has seen the manufacturing industry slip back into contractionary territory in July, survey shows

Manufacturing slips back into red
Manufacturing slips back into the red
August 1, 2011

A sharp fall in new orders has seen the manufacturing industry slip back into contractionary territory in July, according to the latest Australian Industry Group – PwC Australian Performance of Manufacturing Index.

The Index fell 9.5 points to 43.4 last month, following a lift of 5.2 points to 52.9 in June.

Only three of the sub-sectors expanded in July – construction materials, miscellaneous and paper, and printing and publishing.

The decline in activity was most evident in the wood products and furniture (18.5) and clothing and footwear sub-sectors, due to increased competition from cheaper imports, the soft housing market and weak consumer confidence.

New orders slipped 14.4 points to 40.2, while the production sub-index fell 7.6 points to 47.1 and employment decreased 3.3 points to 46.1

Ai Group Chief Executive Heather Ridout explains that the challenges posed by the high dollar and "sluggish" domestic demand intensified in July.

"The survey respondents indicated that adding to their broader concerns was the prospect of a carbon tax and this was clearly weighing on sentiment," Ridout says.

"Perversely, the only indicators of broad business conditions showing an increase were input costs and wages, both of which are negatives for the industry," she says.

According to the Index, the increase in input costs moderated slightly in July, with the seasonally adjusted sub-index falling 3.1 points to 65.4.

Despite the continued decline in employment in the manufacturing sector over recent months, the wages sub-index was up 9.3 points to 71.2 in July.

"We are currently in the midst of a boom and gloom economy and I defy anybody to say with any degree of certainty what the impact would be on the Australian economy if the dollar remains at current levels for a protracted period," Ridout says.

She says this, together with volatile international economic conditions and ongoing political uncertainty in Australia, are seriously undermining business confidence in large parts of the economy.

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