Australia’s manufacturing sector has continued to see a decline in June as a sharper contraction in new orders drags production levels at the end of the second quarter of 2023.
The Judo Bank Manufacturing Purchasing Manager’s Index (PMI) posted a rating of 48.2 in June, down from May’s 48.4, signalling a fourth monthly decline in manufacturing activity since the start of 2023.
In its latest report, Judo Bank said incoming new orders for Australian manufactured goods declined again in June, dragged by weak underlying demand and pressure on client budgets from higher interest rates. The decline in new orders is among the fastest in the current seven-month sequence of contraction.
The manufacturing industry also saw a decline in foreign sales, but firms were able to clear their backlogs at one of the fastest rates on record.
Purchasing activities also declined with a reduction in inventories while employment growth headed further towards stagnation.
Supply constraints eased as inflationary pressures receded.
Furthermore, price pressures moderated in June, with input cost inflation sinking to the lowest in nearly three years.
The survey reported slower raw material price increases, which resulted in a moderated increase in output prices.
“The most welcome feature of the latest PMI report for Australian manufacturing is a further easing of the price indicators. Both input and output price indexes fell to cycle lows. Indeed, the latest input price index is one of the lowest in the past eight years, pointing to some mild deflationary pulse entering the manufacturing pipeline,” said Warren Hogan, chief economic advisor at Judo Bank.
Lower output was also recorded as a result of the fall in overall new work.
Employment growth was sustained in June as manufacturers continued hiring to fulfil ongoing production requirements. Nevertheless, the creation of new jobs was marginal and the slowest in the current sequence.
Overall, Australian manufacturers remained positive at the end of the second quarter and firms are looking forward to an improvement in sales.
“The latest results suggest the RBA may have some breathing space on interest rates and could afford to wait for more information at the July Board meeting before taking any further actions to tighten domestic monetary policy,” said Hogan.
