Manufacturing PMI climbs to four-month high.

Transcription

1 November 2018 Manufacturing PMI climbs to four-month high. Key findings Australia s manufacturing sector continued to expand solidly in October, with the pace of growth accelerating from September. While demand conditions remained robust, there was some indication of slower growth momentum in total new orders and export sales. Nevertheless, firms took on more workers and built up inventories. Survey data also pointed to strong cost inflation pressures which, in turn, prompted firms to raise output prices. Commonwealth Bank Manufacturing PMI May 2016 October 2018 Summary PMI Interpretation Oct Expansion, faster rate of growth Sep Expansion, faster rate of growth Even though the upturn in manufacturing sector conditions improved in October, the survey brought signs of slower growth in demand, particularly for Australian goods exports. New business intakes increased robustly, but the pace of growth was below the average seen over the first half of Export sales meanwhile rose at the softest rate since August The Future Output Index, the gauge for business confidence, remained elevated, but came in at the lowest level for just over two years. That said, a continued expansion in manufacturing activity motivated firms to enhance their operating capacities. Job creation rose to a four-month high as companies stepped up hiring to accommodate additional workloads. Backlogs increased for the third month running in October. Australian goods producers scaled up input purchases, with the extent of buying activity growth the greatest seen in six months. This in turn boosted stock building, with input inventories accumulating at the fastest pace for nearly a year. The headline index from the survey, the seasonally adjusted Commonwealth Bank Manufacturing Purchasing Managers Index (PMI ) rose to 54.5 in October, from 54.0 in September, signalling a solid improvement in the health of the Australian goods-producing sector. Moreover, the latest figure was the highest for four months. The headline PMI is a single-figure composite indicator designed to provide a quick snapshot of the performance of the manufacturing economy. Supply chains were squeezed by the greater appetite for manufacturing inputs. Longer delivery times were also attributed to shipping delays and shortages of certain raw materials such as steel and plastics. With demand continuing to exceed supply, input costs rose further. Cost inflation remained marked and well above its historical average. Firms seeking to protect margins raised their output prices, albeit to a lesser extent compared to the rise in costs.

2 Output Index Q. Please compare your production/output this month with the situation one month ago. Australian manufacturing companies reported a further increase in output at the start of the fourth quarter. Though slightly slower than in September, the rate of growth remained solid and close to the average so far this year. Panellists indicated that greater client demand, efforts to rebuild inventories and additional production shifts all contributed to higher output. New Orders Index Q. Please compare the state of your new orders (in units) this month with one month ago. October data signalled another month of strong demand for Australian manufactured goods, as indicated by the seasonally adjusted New Orders Index registering well above the no-change level of.0. The pace of new business expansion was solid, despite easing noticeably from September s recent high. Where an increase in sales was reported, survey participants generally mentioned promotional activity and new client wins. New Export Orders Index Q. Please compare the state of your new export orders (in units) this month with one month ago. Higher inflows of new orders from overseas markets were recorded in Australia s manufacturing industry during October. However, the pace of expansion slowed to the weakest in the current sequence of growth. According to anecdotal evidence, new export orders were lifted by greater demand from Asia, the UK and New Zealand. Backlogs of Work Index Q. Please compare the level of outstanding business in your company this month with one month ago. There were signs of further strain on operating capacities across Australia s manufacturing sector in October, with overall unfinished work rising for a third straight month. That said, the rate of accumulation eased from the previous month and was modest. Firms pointed to higher sales, machinery breakdowns and delayed input deliveries as reasons for increased backlogs.

3 Stocks of Finished Goods Index Q. Please compare your stocks of finished goods (in units) this month with the situation one month ago. Post-production inventories rose for a second month running in October. Moreover, the pace of accumulation was the strongest recorded in the survey history and solid overall. Anecdotal evidence suggested that greater output, efforts to build buffer stocks and higher demand justified stock accumulation. Employment Index Q. Please compare the level of employment at your unit this month with the situation one month ago. Factory employment rose during the latest survey period, carrying on the current trend of job creation that has been recorded since September The degree of jobs growth picked up to a four-month high. Panel members indicated that greater hiring was necessary to cope with higher production requirements and increased sales. Output Prices Index Q. Please compare the average price that you charge per unit of output (volume weighted) this month with the situation one month ago. Prices charged for Australian manufactured products were raised at the beginning of the fourth quarter. Inflation remained sharp, as was the case in recent months. According to anecdotal evidence, higher prices for materials such as oil and grains were among the factors behind the latest rise in output prices. Increasing rate of inflation Increasing rate of deflation Input Prices Index Q. Please compare the average price of your purchases (volume weighted) this month with the situation one month ago. Input prices faced by Australian goods producers increased in October. The rate of cost increase remained marked and well above the average over the two-and-a-half-year survey history. A combination of an unfavourable exchange rate, higher prices charged by suppliers and increased global commodity prices was responsible for cost inflation. Increasing rate of inflation Increasing rate of deflation

4 Suppliers Delivery Times Index Q. Please compare your suppliers delivery times (volume weighted) this month with one month ago. Supply chains across Australia s manufacturing economy were under pressure again in October, as signalled by the seasonally adjusted Suppliers Delivery Times Index scoring below the no-change mark of.0. Furthermore, the rate of deterioration in vendor performance picked up to the fastest in four months. Anecdotal evidence suggested material shortages, greater demand and shipping delays contributed to longer lead times. Faster % Faster % Same % Slower 40 Slower Quantity of Purchases Index Q. Please compare the quantity of items purchased (in units) this month with the situation one month ago. Survey data indicated a further rise in purchasing activity in October. Moreover, the pace of input buying quickened sharply to a six-month high Greater inflows of new orders were a primary reason motivating firms to scale up purchases of raw materials and semi-manufactured inputs, according to anecdotal evidence. Stocks of Purchases Index Q. Please compare your stocks of purchases (in units) this month with the situation one month ago. The level of input stocks rose at the start of the fourth quarter, in line with greater purchasing activity, as indicated by the seasonally adjusted Stocks of Purchases Index coming in above the neutral.0 mark. The rate of accumulation picked up to the fastest for nearly a year. Increased inventories were commonly linked to efforts to fulfil higher sales. Future Output Index Q. In 12 months time do you expect the overall volume of output to be higher, the same or lower than now? The Future Output Index continued to record well above the neutral.0 threshold, signalling strong confidence among Australian goods producers. That said, the latest reading was the lowest since August Reasons for optimism included higher sales forecasts, planned business expansions and diversification plus increased product variety. Increasing rate of optimism Increasing rate of pessimism ( = no change over next 12 months)

5 For further information, please contact: Commonwealth Bank of Australia Daniel Ferguson Group Corporate Affairs Institutional and Business Banking Telephone media@cba.com.au IHS Markit Bernard Aw Principal Economist Telephone bernard.aw@ihsmarkit.com Jerrine Chia Marketing and Communications Telephone jerrine.chia@ihsmarkit.com About Commonwealth Bank Manufacturing PMI and the The Commonwealth Bank has commissioned IHS Markit to conduct research and provide insights for this edition of the Commonwealth Bank Manufacturing PMI through the Purchasing Managers Index Report. The Commonwealth Bank Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to a representative panel of purchasing executives in over 400 private sector manufacturing firms in Australia. The panel is stratified by GDP and company workforce size. The manufacturing sector is divided into the following nine broad categories: Food & Drink, Textiles & Clothing, Wood & Paper, Chemicals, Plastics & Rubber, Metals & Metal Products, Electronic & Electrical Equipment, Machinery & Equipment, Transport Equipment and Other Manufacturing. About PMI by IHS Markit The intellectual property rights to the Commonwealth Bank Manufacturing PMI provided herein are owned by or licensed to IHS Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information ( data ) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers Index TM and PMI are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. Commonwealth Bank use the above marks under license. IHS Markit is a registered trademark of IHS Markit Ltd. Things you should know This report is published solely for information purposes. As this report has been prepared without considering your objectives, financial situation or needs, you should before acting on the information in this report, consider its appropriateness to your circumstances and if necessary seek the appropriate professional advice. The information in this report and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication. No guarantee is provided as to the accuracy, reliability or completeness of any statement made in this report. Commonwealth Bank of Australia ABN AFSL and Australian credit license 2349.