The Australian Performance of Manufacturing Index Hits Record Lows

3 Nov 08

The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) fell solidly in October to 40.4, representing the lowest recorded level of the series since it commenced in 1992.

The Index recorded a drop of 6.8 points in October.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said the volatility in global financial markets was having an unambiguous impact on Australian manufacturing, through slower economic growth both domestically and in its major overseas markets and through uncertainty.

She said this was eroding manufacturers’ confidence in the economic outlook.

“The ongoing decline in production reflects the continuing decline in new orders which has meant a historic low for the new orders component of the Australian PMI in October.

"The slump in new orders suggests that there is a crisis of confidence arising from a crisis of uncertainty.

"Until this is resolved we won’t be able to ascertain if the downturn in new orders is real or a symptom of extreme caution.

“While there have been big shifts in fiscal and monetary policies, more will potentially need to be done. In particular, there is clearly room for further reductions in interest rates,” Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said the short-term outlook for manufacturing remained bleak.

"Profitability will remain under pressure over coming quarters as sales and production volumes decline and costs, though now showing signs of easing growth, continue to rise.

“In this climate, business needs to continue to reassess operations to maximise cost savings and tailor their near-term business plans effectively.

"This can be achieved through an ongoing focus on broadening of market including export markets and product scope, continued development of global supply chains and improvement of skills bases.

"Innovation as well as and including business simplification in these times will prove critical for the long term viability of the Australian manufacturing industry.” Mr Billings said.  

Key Findings

• Manufacturing activity fell for a fifth successive month in October.
• This month’s result reflects a combination of the uncertainties and loss of business and consumer confidence associated with the worsening of the global financial crisis, the soft housing sector, slower world growth particularly in the developed economies and weaker domestic consumer demand.
• Manufacturers did however cite positive effects from infrastructure related demand.
• These factors were reflected in declines across all components of the Australian PMI in October.
• Production fell for a fifth consecutive month, and more strongly than in recent months.
• This was reflected in the decline in new orders which fell for the sixth consecutive month.
• In line with the easing of production, employment fell for the eighth month in October and at a more rapid pace.
• On the positive, input and wages costs growth eased significantly, while selling price growth also eased solidly.
• Inventories and supplier deliveries fell markedly, while exports also declined.
• Manufacturing activity fell in all states.

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