Australian manufacturing PMI index falls to three-year low in April on lower output and slower order book growth

Australian manufacturing PMI falls to three-year survey low in April. The deceleration in Australia’s manufacturing sector gained momentum at the beginning of the second quarter. The headline index was dragged down by lower output and notably slower order book growth.

The seasonally adjusted Commonwealth Bank Manufacturing PMI dropped to 50.9 in April from March’s 52. Today’s reading is the lowest since the survey started three years ago, suggesting only a marginal rebound in the manufacturing sector’s health.

The production volumes dropped in April, along with a marked deceleration in order book growth. New order intakes rose at a survey rate low, as export sales fell to show stalling demand conditions. Consequently, the level of unfinished work fell, ending an eight-month period of rise.

The presence of spare capacity saw companies hesitant to hire more workers, with net factory employment remaining unchanged in April. In the meantime, there continued to be reports of input shortages at distributors. Therefore, delivery times lengthened further. Panellists stated that freight delays and flooding also added to the longer wait.

Tight supply led to increased input costs. Input price inflation deepened and was marked overall in April. Anecdotal evidence implied that suppliers’ price hikes and greater costs for raw materials such as steel, paper and fuel added to increased expenses. In response to higher cost burdens, companies hiked output charges further, but the pace of rise was the softest for one-and-a-half years in the midst of reports of price reductions and high competition.

Weaker demand conditions pushed companies to trim purchasing activity. The survey recorded the first fall in input purchases in the series history which, in turn, added to a slower rise in input inventories. Stocks of finished goods dropped and at the steepest rate since the survey started in May 2016. Lastly, business sentiment stayed positive in April, although the Future Output Index dropped to its second-lowest level in the survey history.

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