Australia’s manufacturing sector showed signs of a slower contraction in October, with the Judo Bank Australia Manufacturing Purchasing Manager’s Index (PMI) posting 47.3, up from 46.7 in September.
Although the PMI indicated continued deterioration for the ninth consecutive month, the rate of decline moderated, suggesting a less steep downturn compared to previous months. Incoming new orders, production, and purchasing activity all contracted, albeit at softer rates, while business confidence saw an uptick.
“The final manufacturing PMI data for October shows an improvement in trading conditions towards the end of the month. However, trading conditions in the sector remain historically weak, with businesses continuing to gradually reduce headcount over the month,” remarked Matthew De Pasquale, economist at Judo Bank.
The softer contraction was driven in part by a decrease in capacity pressures. Manufacturers continued to shed jobs for a fifth straight month as they reduced backlogged work, reaching record lows in outstanding work since data tracking began in 2016.
The cautious stance extended to inventory management, with manufacturers reducing both purchasing activity and stocks in response to ongoing subdued demand.
“While still near last month’s recessionary lows, the output and new orders indexes improved over the month,” said De Pasquale. “This suggests the worsening of conditions in the sector is no longer accelerating, though the sector remains under strain.”
New orders continued to fall, marking nearly two years of decline in demand for Australian manufactured goods.
The rate of decline, while sharp, was less severe than in September. Exports, however, contracted more significantly, largely due to slowing demand in key overseas markets, exacerbating challenges for Australian manufacturers.
“Household stimulus and an expected improvement in disposable incomes don’t appear to have translated to improved trading conditions for local manufacturers, contrasting with the ongoing resilience seen across the services economy,” De Pasquale noted.
“Export activity among manufacturers also remains subdued, with the New Export Orders index down below the neutral ’50’ level at a cyclical low comparable to the start of the pandemic.”
The employment index revealed another challenging month for the sector, with a continued reduction in workforce numbers. In contrast to the manufacturing sector’s job cuts, industries such as healthcare and education are still grappling with high demand for labour.
De Pasquale emphasised the contrast, stating, “Australian manufacturers have been reducing headcount in aggregate over almost every month of 2024, whereas the services sector faces ongoing labour shortages.”
Cost pressures eased slightly, as input price inflation fell to its lowest level since January.
Meanwhile, manufacturers raised their selling prices in October, marking the highest output price inflation in five months. This trend signals potential domestic goods price inflation that may outpace the Reserve Bank of Australia’s target band of 2-3%.
“Although demand remains weak, trading conditions seem to have improved due to reduced margin pressure throughout October,” De Pasquale commented.
“The output price index reached a five-month high this month – suggesting domestic goods price inflation is rising.”
Confidence levels improved modestly, with business sentiment remaining positive.
The future activity index showed that many manufacturers anticipate higher production in the coming year, though optimism is still at one of the lowest levels on record.
“The future activity index remains above the neutral level, indicating manufacturers generally expect increased activity over the next 12 months,” said De Pasquale.
“However, the proportion of optimistic manufacturers is at the lowest level since the survey began in 2016, despite improvements over the past few months.”
