The manufacturing sector in Australia slipped into stagnation in January with a manufacturing Purchasing Managers’ Index (PMI) score of 50.0, down from 50.2 in December 2022, marking the conclusion of a 31-month growth streak.
The latest report from Judo Bank revealed that at the beginning of 2023, demand and production both decreased, leading to a reduction in buying activity.
Despite this, findings showed that businesses kept hiring at a healthy pace.
According to panellists, manufacturing employment levels increased faster than normal as businesses continued to increase their workforce capacity to handle ongoing labour shortages and prepare for future output expansion.
“Despite the slowdown in activity labour demand remains strong, with the January result rising well above the 50 level. Labour demand has moderated from the very strong levels seen in 2021 and early 2022,” said Warren Hogan, chief economic advisor at Judo Bank.
As manufacturers’ pricing power migrated away, selling price inflation also decreased, but businesses overall remained upbeat about output over the coming year.
The panellists said that at the beginning of the new year, clients reduced new orders due to increasing inflation and interest rates.
This was also true internationally, as fresh export orders briefly decreased, even so at a marginal rate, each succeeding month, the report highlighted.
Participants on the panel cited rising labour, transportation, and raw material costs as the causes of the increase in input costs overall.
However, enterprises passed on greater costs at a slower rate due to weaker demand circumstances, resulting in the lowest selling price inflation in over two years.
“Inflation pressures remain elevated and well above a level consistent with the RBA’s 2% to 3% inflation target. We will need to see further declines in the price indicators in 2023 to be comfortable that inflation is returning to the central bank’s target,” Hogan explained.
