Judo Bank’s Australia Manufacturing Purchasing Manager’s Index (PMI) for January indicated a stabilisation in the country’s manufacturing sector conditions at the beginning of 2024.
The headline seasonally adjusted Judo Bank Australia Manufacturing PMI posted 50.1 in January, up from 47.6 in December, signaling that manufacturing sector conditions remained broadly unchanged at the start of 2024 after deteriorating in the preceding ten months.
The latest data shows that while new orders and production remain in contraction territory, the rates of decline have eased to modest levels. Job shedding occurred at a slower rate, and there was a less rapid reduction in buying activity.
In particular, manufacturing output fell at a shallower rate in January, supported by a slower decline in new orders, including export orders.
Soft economic conditions and high-interest rates continued to dampen demand, but to a smaller extent in the latest survey period.
Due to reduced new work intakes, employment levels continued to fall across the Australian manufacturing sector, albeit at a marginal pace. The non-replacement of leavers and, in some cases, redundancies were reported.
Purchasing activity contracted in line with lower production in January, though at a slower pace. This led to reduced input inventory holdings among some manufacturers.
Supply issues surfaced with lead times lengthening at the fastest pace in seventeen months, attributed to supply and transportation constraints from domestic port issues and Red Sea shipping disruptions.
Despite increased supply delays, price pressures remained subdued across the Australian manufacturing sector.
Higher raw material, shipping, and energy costs contributed to average input prices rising in January but at the softest pace since July 2023.
Overall sentiment improved in the Australian manufacturing sector, with business confidence reaching its highest level since August 2023.
Firms expressed optimism about sales picking up in the next 12 months as economic conditions improve.
Warren Hogan, chief economic advisor at Judo Bank, commented on the January Australian Manufacturing PMI report, suggesting that it indicates the Australian economy is on a soft landing trajectory.
He emphasised the rise in both the output index and new orders over the past two months, indicating potential resilience in the manufacturing sector.
“Business confidence also improved among manufacturers in January, with the future output index reaching its highest level since last August,” he noted.
However, he urged caution in interpreting a single monthly data point, underscoring the need for further consolidation in activity and new orders in February to validate a potential turnaround in late 2023.
“Overall, the first read on Australian manufacturing activity in 2024 shows a welcome improvement in activity and confidence, which points to the potential for a cyclical recovery over the course of 2024,” Hogan concluded.
