The latest data released by Judo Bank reveals a concerning trend for Australia’s manufacturing sector, as conditions deteriorated at the fastest rate since May 2020.
Notably, price pressures softened in March, with lower input cost inflation contributing to slower output price increases.
The seasonally adjusted PMI posted 47.3 in March, down from 47.8 in February, marking a second consecutive monthly deterioration in sector conditions.
The March report from the Judo Bank Australia Manufacturing Purchasing Manager’s Index (PMI) highlighted a significant decline in various key indicators, indicating a challenging environment for manufacturers.
One of the primary drivers behind this downturn was the accelerated fall in new work inflows, leading to a reduction in manufacturing output.
“Activity indicators remained soft, with both output and new orders indexes holding near cyclical lows, although both rose slightly in March,” stressed Warren Hogan, chief economic advisor at Judo Bank.
“We would need to see a much bigger improvement in these index readings to begin talking about a cyclical recovery in the Australian manufacturing sector,” he noted.
Employment levels and purchasing activity also experienced declines, while overall business confidence continued to wane.
The report revealed that incoming new orders for Australian manufactured goods declined for the sixteenth successive month, with the pace of decline matching levels seen during the height of the pandemic in May 2020.
Factors contributing to this decline include elevated interest rates and subdued economic conditions, according to industry experts.
Although new export orders also decreased in March, the pace of decline was relatively modest compared to domestic orders. Consequently, lower new work inflows resulted in decreased output for the month.
Employment levels fell in March, contrasting with the long-term trend of growth, with the rate of job shedding reaching its fastest pace since June 2020.
Additionally, purchasing activity decreased sharply, leading to a renewed fall in stocks of purchases.
Meanwhile, vendor performance continued to deteriorate, mainly due to external disruptions such as those in the Red Sea region, according to anecdotal evidence.
Despite rising input costs driven by raw material and transport expenses, selling prices at Australian manufacturers increased at a slower pace in March, reflecting softer inflationary pressures.
“The manufacturing sector is playing out in line with expectations for a soft landing in the economy. While this will help with the desired re-balancing of Australia’s macro economy, manufacturing is a small component of the Australian economy, accounting for less than 10% of total output,” Hogan said.
Looking ahead, sentiment in the Australian manufacturing sector remained positive, with firms hopeful of increased sales in the coming 12 months.
However, concerns over heightened competition, elevated interest rates, and rising costs have dampened optimism, leading to a decline in confidence levels for the second consecutive month.
