Manufacturing loses momentum in June

Activity across the Australian manufacturing sector fell sharply in June, according to the Australian Industry Group Australian Performance of Manufacturing Index (PMI). Following a brief expansion in May, the PMI dropped 8.1 points to 44.2 (readings below 50 indicate a contraction in activity).

Of the seven activity sub-indexes, only manufacturing exports expanded in June, down 8.1 points to 50.3, and largely concentrated in the food and beverages sub-sector. The new orders (down 10.6 points to 42.2), production (down 9.3 points to 43.5), employment (down 5.9 points to 44.9) and supplier deliveries (down 9.7 points to 44.3) sub-indexes all failed to maintain last month's brief expansion, and a 13th month of decline in manufacturing sales (down 6.9 points to 41.1) signalled continued weakness in local demand.

Four of the eight manufacturing sub-sectors did expand in June, led by food, beverages and tobacco (up 0.7 points to 60.5) for a 13th consecutive month of growth. The wood and paper products (up 4.5 points to 63.8) sub-sector also maintained recent strong performance, while textiles, clothing and furniture (up 5.8 points to 52.5) returned to expansion after three months in decline. Respondents across metal products (down 0.8 points to 39.6) and machinery and equipment (down 2.0 points to 41.1) indicated the progressive closure of Australian automotive assembly is starting to be felt more keenly.

Ai Group Chief Executive Innes Willox said: "While the lower dollar continues to support exports, local demand remains generally weak, apart from a few bright spots in food and beverages and housing-related manufactures. In particular, the progressive closure of local automotive assembly is now having a greater impact on downstream demand. Further declines in mining and other business investment in machinery and equipment, and a still subdued economic outlook, are weighing more heavily on the manufacturing sector than any positive effects of the federal Budget and recent interest rate cuts."