Australian Performance Indexes show nervous growth

The Australian Industry Group (Ai Group) key economic indicator, the Australian Performance Indices, have showed slight growth in the Manufacturing and Services sectors, with the Services sector seeing the first month of expansion after four months of consecutive contraction.

The Manufacturing index (PMI) has shown 33-months of continual growth, though the PMI showed a slight dip on last month by 2.1 points with a result of 52.7 points overall.

A score of 50 or over indicates expansion while a score lower than 50 indicates contraction.

The Australian PSI saw expansion in four of its eight sectors in May, notably personal and recreation services; wholesale trade; business and property services; and hospitality, topping the list at 60.1 points.

Chief Executive of Ai Group Innes Willox says performance in the manufacturing sector was mixed and may point to further dips in the coming months.

“Manufacturers are hoping that the resolution of political uncertainties associated with the election will provide a base for a return to more robust conditions. The medium-term outlook remains clouded by the prospect of uncompetitive prices for gas, both for direct industrial use and as a critical input into electricity generation,” Mr. Willox said in a statement.

The PMI survey showed five of seven indexes indicating expansion, with the remainder showing stable conditions.

There was a reduction in growth across all indexes compared to the previous month except for employment which rose 4.1 points to 55.6. The production index fell 6.9 points, its largest cut since October 2017. It remains in expansion at a weak but stable 51.2 points.

One area of concern is the upward tick of the input prices index (up 3.6 points to 68.3) after two months of contraction, though increased energy prices may claw away at any potential gains.

“Momentum eased for production, sales, exports and new orders with at best moderate growth recorded in these sub-indices. While the large food and beverages sector continued to grow strongly, as did the building, wood, furniture and other products category, the important metals products and machinery and equipment sectors slipped further,” Willox said. “The chemicals sector lifted modestly and the businesses in the textiles, clothing, paper and printing sector recorded a slight reduction in performance.”

Federal election uncertainty was also to blame for contraction in the PSI (Services index.) The downturn was magnified by a slight correction in the housing market and a weakening Australian vs. US dollar. Capacity utilisation rose by 1.4 points to 80.9% of total, higher than the long-term average in the series (76.1%.)

The selling prices index dipped 2.8 points to 52.1 in the PMI and rose by 5.6 points to 47.7 points in the PSI. The PSI price index was previously on a backward slide for the prior five months. New service orders rose 11 points to 55.6 points.

Overall weakness in the economy was highlighted earlier this week as the Reserve Bank of Australia cut the official cash rate from a record low 1.5% to 1.25%, the first movement in the rate since September 2016. The rate cut was to support employment growth and confidence in meeting medium-term inflationary targets.