The food and beverage manufacturing sector showed strong performance in November, despite the Australian Industry Group Australian Performance of Manufacturing Index (PMI) falling to its lowest level since August 2016.
The November PMI fell to 48.1, 3.5 points down on October, a drop below the “critical 50-point mark”, Ai Group said. The 50-point threshold separates expansion and contraction and has only happed three times since July 2016.
Along with food & beverage, machinery & equipment and chemicals sectors expanded. Metal products, building materials, wood & other manufacturing and TCF, paper and printing contracted.
The faster rate of contraction of the new orders index in November suggests a weak Christmas period ahead for Australian manufacturers. However, some manufacturing sectors are reporting better conditions than others, with manufacturers in the large food and beverage sector continuing to report buoyant conditions, Ai Group said.
The food & beverages sector remained elevated, driven by rising exports and a seasonal increase in demand because of Christmas.
Ai Group CEO Innes Willox said: “A decline in performance across the diverse manufacturing sector had been telegraphed by the weakness in new orders in recent months. The further fall in new orders in November is far from encouraging and is further evidence that the stimulus from interest rate reductions and the income tax cuts has not so far flowed through to consumer and business spending.
“The Federal Government will need to look very closely at additional stimulus options over coming months.”
Wages growth and the average wages index eased further, while the selling price index increased in the month, indicating fewer businesses faced upward wage pressures. The average wages index fell a further 2.5 points to 56.8 in November, indicating wages rose at a slower rate than in October.
Meanwhile, recent weakness in new orders is starting to have an impact on employment, new orders and supplier deliveries contracted but production, sales and exports remained stable.
Drought remains a top concern for many manufacturers, particularly those located in rural areas or those selling metal products and machinery & equipment to the agricultural sector.
Food & beverage snapshot (statistics from Ai Group)
- The food, beverages & tobacco sector produced $27.6bn in real value-added output in the year to Q2 2019 (27 per cent of manufacturing real value-added output);
- In August 2019 it employed 237,000 people (27 per cent of manufacturing employment);
- The index for food & beverages increased by 0.4 points to 60.8 points, indicating an accelerating rate of expansion in November (trend).
- The index for this sector remains above the long-run average (53.5 points since 2003).
- Respondents in the largest manufacturing sector noted rising exports and a seasonal increase in production in the lead up to Christmas.
Machinery & equipment
- The machinery & equipment sector produced $18.8 billion in real value-added output in the year to Q2 2019 (18 per cent of manufacturing real value-added output).
- It employed 178,000 people in August 2019 (20 per cent of manufacturing employment).
- The index for machinery & equipment fell by 0.3 points to 53.1 points, indicating a slight slowing in the rate of expansion in November (trend).
- The index for this sector remains above the long-run average (49.7 points since 2003).
- Respondents who sell agricultural machinery & equipment are reporting weak conditions because of the drought.