Pressure Increases on Australian Manufacturing Employment

2 Feb 09

Manufacturing activity contracted for an eighth consecutive month in January, although the rate of decline eased further from the November 2008 record low. The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) registered 36.6 in January, up by 2.9 points on the previous month but still well below the 50 point level which separates expansion from contraction.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said "The ongoing falls in new orders in particular highlight the challenging conditions manufacturers are facing in the early months of the New Year. As a result, businesses are working on reducing inventories, leading to lower production and consequently putting further pressure on employment.

"While lower interest rates and government stimulatory and other measures are helpful, and may have impacted on the positive outcome for the food and beverage sector, more will need to be done and business will be looking for a further significant cut in interest rates this week," Mrs Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said the result of January's Australian PMI® confirms clearly that manufacturers are facing an increasing squeeze on profitability, which will persist well into 2009.

"While input and wages costs are showing signs of rising more slowly, this is merely the symptom of weaker demand for manufactures and consequently lower production and employment levels. In these conditions, where the potential for sales growth is constrained, the key responses remain a rigorous focus on unit cost management, reassessment of business plans and a focus on retaining competitive strengths through innovation in products and operations and the retention of skilled workers," Mr Billings said.

Australian PMI® Key Findings for January:

• Manufacturing activity fell for an eighth consecutive month in January.
• The Australian PMI® recorded 36.6 in January, an increase of 2.9 points on the previous month.
• New orders continued to fall sharply in the month, suggesting the lower interest rate environment and policy stimulus are yet to have noticeable impact on domestic and international demand for manufactured goods.
• Despite marginal improvements, all components remained below 50, indicating falls in the level of each indicator.
• Production and supplier deliveries continued to decrease at a solid pace in January.
• Employment declined for an eleventh consecutive month, although the pace of job-shedding was slower than in the final quarter of 2008.
• Firms continued to rely on existing inventories to meet current demand, with stocks run down for a fourth consecutive month. The fall in manufactured exports moderated further in January, aided by the recent depreciation of the Australian dollar.
• Input cost growth dropped to an 18-month low, underpinned by a sharp decline in the price of basic metals, while wage and selling price increases were slightly weaker.
• Manufacturing activity fell in all states, with the strongest declines recorded in New South Wales and South Australia.

Download the full January 2009 Australian PMI®.

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