Australian Manufacturing PMI Hits a Slump


In recent news, the Australian Manufacturing PMI has indicated a concerning trend for the nation’s industry. As we hit October, the sector has seen a contraction, reaching a four-month low. For those new to the term, the PMI, or Purchasing Managers’ Index, is a measure of the health of the manufacturing sector. A number above 50 indicates expansion, while below signals contraction.

Manufacturing on a Downward Slope

This October, the Judo Bank Flash Australian Manufacturing PMI recorded a slight decrease to 48.2 from September’s 48.7. This marks the continuation of an eight-month decrease in the health of the manufacturing sector — the lowest point since the middle of the year.

What’s driving this downturn? A significant factor is the reduction in new orders, the steepest decline since May 2020, reflecting weakened demand. As a result of the fall in new orders, production has taken a hit. Even as factories are trying to complete existing orders, the rate of production has slowed considerably. This has led to a tightening of inventory levels — manufacturers simply don’t have as much stock as before.

Employment and Inflation Woes

On the employment front, the news isn’t much brighter. Job growth in the sector is at its most sluggish in three years, painting a grim picture for those looking for work in manufacturing. Adding to the industry’s challenges is the acceleration of input costs — the prices of materials needed to make products — which have soared to a seven-month high. This increase in costs has inevitably led to higher selling prices for goods.

However, in an interesting turn, Australian manufacturers have been raising their selling prices at a slower pace. Why? The strategy is to share some of the increased costs with clients in hopes of boosting sales amid the declining demand.

Understanding the Australian Manufacturing PMI

The Australian Manufacturing PMI is an excellent real-world example of how various factors come together to influence market conditions. It shows how demand and supply, production, and pricing strategies can impact an entire sector and, by extension, the economy.

  • 31 October 2023
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