Signs of manufacturing slowing in August: Ai Group

The Australian Industry Group (Ai Group) has announced that its Australian Performance of Manufacturing Index (Australian PMI) dropped 3.2 points to 49.3 in August, indicating a slight contraction in the manufacturing industry. Readings below 50 points indicate contraction in activity, with lower results indicating a faster rate of contraction. This is the first time the index has contracted since January 2022 following the COVD-19 Omicron outbreak.

“The Ai Group Australian PMI for August points to the end of the recent expansion of manufacturing activity,” said Innes Willox, Chief Executive of Ai Group. “Production, employment and sales were all down in August and most manufacturing sectors reported lower performance in the month.

“The chemicals subsector expanded as did the diverse textiles, clothing, footwear, paper and printing subsector. Prices and wages continued to push higher and with the Reserve Bank seeking to ease these pressures by raising interest rates, further slowing in manufacturing looks increasingly likely over the coming months.”

The key findings in the announcement were:

• Manufacturing fell short of growth in August for the first time in six months. Activity was lower in all subsectors other than chemicals and the diverse textiles, clothing, footwear, paper and printing subsectors.
• Labour challenges and supply chain disruption continue to plague manufacturing as in previous months. While new orders continued to grow in August the pace of growth eased and sales dropped in August relative to July, indicating a negative direction for demand.
• Most manufacturing activity indicators contracted at an accelerating rate in August. Despite this wages rose steeply in August pointing to labour shortage pressures.
• Manufacturing exports declined further and businesses reported volatile export demand.
   

The Australian Industry Group’s Australian PMI is a national composite index calculated from a weighted mix of the diffusion indices for production, new orders, deliveries, inventories and employment. An Australian PMI reading above 50 points indicates that manufacturing activity is expanding; below 50, that it is declining. The distance from 50 indicates the strength of expansion or decline.

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