Business activity in Australia’s private sector fell for the first time in four months, with Judo Bank’s latest Flash Australia Composite PMI report dropping to 48.3 from June’s 50.1.
Manufacturing output ticked higher in July but a renewed contraction in the service sector dragged private sector activity as interest rate rise hit customer confidence and budget.
New orders remained broadly unchanged in July following three consecutive months of growth. New business in the service sector increased fractionally while new orders in manufacturing continued to fall but at a softer pace. Total new business was dragged by a further reduction in new export orders, with declines seen across both sectors.
“The good news is that this gradual easing in activity will help take pressure off inflation and interest rates, but it will need to be sustained for the rest of 2023 and into 2024. The results also suggest that the Australian economy remains on the ‘narrow path’ for a soft landing,” said Warren Hogan, chief economic advisor at Judo Bank.
The rate of cost inflation accelerated to a four-month high in July amid faster increases across both the manufacturing and services sectors.
“The economy is still growing with no signs of impending recession. Activity levels are easing only gradually. Indeed, manufacturing activity picked up a little in July,” Hogan said.
Employment in the private sector fell again in July but remains in expansion above 50.
“Labour demand across the economy remains solid and above a level that we would typically see when output and new orders were as soft as they have been recently. This suggests that labour hoarding continues as activity slows,” Hogan added.
Meanwhile, business confidence dropped to the lowest level since the initial COVID-19 outbreak in April 2020 despite companies continuing to forecast output growth for the coming year. Sentiment weakened from businesses in the services sector but improved for manufacturers.
