Australian manufacturing recovery stalls over holiday period

The Australian Industry (Ai) Group Australian Performance of Manufacturing Index (Australian PMI) fell by 6.4 points to 48.4 over the summer holiday period (December 2021 and January 2022*), indicating weaker conditions compared with November 2021 (readings below 50 points indicate contraction in activity, with lower results indicating a faster rate of contraction).

Innes Willox, chief executive of the national employer association, Ai Group, said, “Australia’s manufacturers reported a modest contraction in performance over December and January as businesses reported further disruptions to supply chains and as staff availability emerged as a major constraint on many businesses. Cost pressures were keenly felt with input prices continuing to rise and the selling prices index indicating only a partial recovery of these costs in the market.

“The fall in performance in the December-January period reversed the improvements in manufacturing conditions reported last November as activity restrictions were eased in the south east corner of the country. In contrast, the December and January period was heavily influenced by the much higher level of Covid-19 infections and the jump in the number of people in isolation.

“The performance of the food & beverages sector fell sharply with much smaller contractions reported by metal products and chemicals manufacturers. In contrast, building product producers reported a strong lift in performance and machinery & equipment manufacturers reported further gains as did businesses in the diverse textiles & paper group. Manufacturing employment and exports slipped into negative territory after short-lived recoveries in November. Production was broadly flat and sales edged higher. The new orders index fell steeply pointing to a reduction of confidence among businesses dealing with new implications of the Covid-19 pandemic,” Willox said.

Six of the seven activity indices in the Australian PMI fell in December and January, with only the sales index increasing (up 1.7 points to 52.3). Production (down 0.6 points to 51.9), new orders (down 8.0 points to 51.3), and stocks (down 6.1 points to 52.5) remained mildly positive following stronger results in November.

Three of the six manufacturing sectors in the Australian PMI reported positive conditions in December and January, with the strongest results from manufacturers in the building materials (up 6.5 points to 63.4) and machinery & equipment (down 2.3 points to 53.5) sectors. The very large food & beverage sector fell into contraction (down 19.2 points to 38.2) after a temporary rebound in November.

The input prices index rose steeply over the holiday period (up 4.0 points to 82.3), indicating faster price increases on average, while selling prices eased from a recent series high of 68.1 but remained elevated (down 3.3 points to 64.8).

The average wages index lifted (up 1.1 points to 63.5) and remained above its long-run average (58.9 points) as staff availability was reduced with increasing numbers of people isolating due to the impact of the Covid-19 Omicron variant.