Australia’s manufacturing sector continued to face challenges in November, but the pace of contraction eased significantly, signalling potential stabilization in the coming months.
The seasonally adjusted S&P Global Australia Manufacturing PMI rose to 49.4, up from 47.3 in October, marking the softest decline in manufacturing conditions in six months.
The contraction in new orders, including exports, moderated during November, leading to a less pronounced decline in production.
However, the sector continued to grapple with subdued market conditions, which kept demand for Australian manufactured goods at low levels. Despite this, business sentiment improved significantly, with optimism reaching its highest level since January 2023.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, commented:
“November’s Australia Manufacturing PMI data revealed that operating conditions deteriorated at a softer pace in the penultimate month of the year for goods producers. Manufacturing output fell at the softest pace in six months with slower declines in both domestic and external new orders.”
For the first time in six months, employment in the manufacturing sector rose, supported by growing confidence among businesses.
Around 43 per cent of survey participants expressed optimism about output over the next 12 months, compared to just 8 per cent who were pessimistic.
This shift in sentiment encouraged some firms to increase their workforce capacity in anticipation of future growth.
Pan noted: “While tight monetary policy settings and subdued market conditions continued to dampen performance in the manufacturing sector, firms are noticeably more optimistic about future output, going as far as to raise their workforce capacity once again in anticipation of higher future output.”
Despite ongoing challenges, inflationary pressures eased further. Input prices rose due to increased transportation and raw material costs, yet the overall rate of cost inflation was the second-lowest since the survey began in 2016. Manufacturers absorbed some of these costs to support sales, leading to marginal selling price inflation—the lowest recorded since August 2020.
Pan added: “Meanwhile, inflationary pressures remained low in the manufacturing sector as selling prices rose only marginally in November. This continues to bode well for the broader easing inflation trend in Australia.”
Manufacturers maintained a cautious approach to inventory management, reducing both pre-production and finished goods stocks.
This trend reflects a reluctance to hold excess inventory amid continued market uncertainty.
If economic conditions improve, the sector may begin to see a more sustained recovery in 2024.
