Australia's manufacturing sector faced significant challenges with a noticeable decline in orders, production cuts, and payroll reductions in December, as reported by S&P Global. The seasonally adjusted Australia manufacturing purchasing managers index (PMI) recorded a sharp drop to 47.8 in December, down from 49.4 in November, clearly indicating that the sector has fallen further below the critical 50-mark which delineates growth from contraction.
This marked a concerning eleventh consecutive month of deteriorating conditions in the manufacturing landscape, with the decline in December being more pronounced than prior months. Central to the latest downturn in manufacturing conditions was a faster contraction in new business. New orders from Australian manufacturers plummeted, a trend attributed to persistently high domestic interest rates, which according to survey respondents, significantly dampened activity.
Additionally, export orders saw a decline stemming from weakened demand from key international markets, including the US, Europe, Asia, and New Zealand. In response to the declining new orders during December, Australian factory managers reduced output significantly. This is reflective of a broader trend where the output has been consistently decreasing for just over two years now, indicating deep-rooted issues within the sector.
As capacity pressures eased in December, the manufacturing sector also experienced payroll cuts, further indicating the challenging economic environment. Despite these struggles, inflationary pressures have remained a prevalent issue for manufacturers in December. The sector witnessed heightened input cost inflation for the first time since July, surpassing the annual average.
Survey participants highlighted escalating costs related to materials, energy, and shipping as key factors driving input prices higher, compounded by various supply constraints. Moreover, selling prices within the manufacturing sector also surged as managers attempted to offset rising costs. This adjustment marks a significant shift in strategy as firms grapple with maintaining profitability amidst a contracting market. Interestingly, despite the ongoing challenges within the manufacturing landscape, managers expressed an optimistic outlook regarding the upcoming year.
Business confidence surged to the highest level in 28 months, as manufacturers anticipated potential increases in output facilitated by the prospect of lower interest rates alongside upcoming local elections. The Australia manufacturing PMI was developed by S&P Global through feedback collected from a sample of 400 manufacturers between December 5 and December 17, showcasing a comprehensive view of the sector’s health and outlook for the future..