MAY 2013

AUSTRALIAN PMI
MAY

MANUFACTURING MALAISE CONTINUES IN MAY

KEY FINDINGS
The latest seasonally adjusted Australian Industry Group

65 60 55

AUST

43.8

50 45 40 35

Decreasing

EUROZONE PMI

Australian Performance of Manufacturing Index (Australian PMI) rose 7.1 points to 43.8 in May. It recovered much of Aprils sharp decline, to be broadly in line with the average (negative) level seen over the past year. This marks the 23rd consecutive month of contraction in the sector (with 50 points marking the separation between expansion and contraction). Interest rate cuts by the RBA over the past year appear to have had little impact on activity levels thus far. The capacity utilisation rate is now below 70%, which is only just above the levels recorded during the GFC. And although still registering expansion (readings above 50 points), the input prices and wages growth sub-indexes fell to their lowest levels since June 2009. Impediments noted by manufacturers in May included: continued weakness in housing construction; low levels of business confidence and investment intentions; rising energy costs; the high Australian dollar; public sector spending contractions; fierce competition from imports; flat local demand; and reduced confidence due to the Federal Budget and impending election. The exchange rate depreciation through the middle of May was associated with a modest improvement in the exports sub-index, although at 28.5 points, it continues to indicate a sharp decline in export orders (for a 10th consecutive month).

60
Increasing

APR

55 50
Diffusion Index (Points)

30

45 40 35 30 25 20
May 10 Feb 11 May 11 Feb 12 May 12 Feb 13 May 13 Aug 10 Nov 10 Aug 11 Nov 11 Aug 12 Nov 12

APR

65 60 55

USA ISM PMI

USA

54.6

50 45 40 35

MAR

Australian PMI

3 month moving average

30

APR

65 60 55

SECTORS
In three month moving average (3mma) terms*, all manufacturDecreasing Increasing

EURO
Food, beverage & tobacco products Textiles, clothing & other manufacturing Wood & paper products Printing & recorded media Petroleum, coal, chemical & rubber products Non-metallic mineral products

46.8

50 45 40 35

JAPANESE PMI

ing sub-sectors in the Australian PMI contracted in May. The activity index of the machinery and equipment sector shows little sign of improvement, suggesting that a recovery in non-mining business investment is still some time away. Production of non-metallic mineral products (including glass, plaster, and concrete) also remains depressed, in line with the low level of building approvals and residential construction. On a brighter note, in 3mma terms, the activity index of the textiles, clothing and other manufacturing sub-sector has increased modestly over 2013, possibly reflecting improvements reported by household-oriented sectors in the Australian PSI. * This month we present the sub-sector indices in the Australian PMI as three-month
moving averages, in order to more accurately identify the trends emerging from the (relatively volatile) monthly data.

MAR

30

APR

65 60

Metal products Machinery & equipment Australian PMI

51.1

55 50 45 40 35

10

20

30

40

50

60

70
May 13

80

90

100

JAPAN

Diffusion Index 3 month moving average

Apr 13

PRODUCTION AND CAPACITY UTILISATION

Seasonally adjusted, the production sub-index in the Australian

MAR

30

70 65
Production Diffusion Index (Points)

80

May 10

Aug 10

Nov 10

Feb 11

May 11

Aug 11

Nov 11

Feb 12

May 12

Aug 12

Nov 12

Feb 13

May 13

PMI rose by 13.0 points to 46.1 points in May. This marks the 14th consecutive month of declining production levels in the Australian PMI. All sub-sectors recorded a fall in production levels in May except for the food, beverage & tobacco sub-sector, which expanded. In line with the prolonged period of decline in production levels, capacity utilisation for the manufacturing sector recorded 68.9% in May (not seasonally adjusted), which is only slightly above the levels recorded during the global financial crisis in 2009. This suggests there is a growing amount of spare capacity in the manufacturing sector, which is likely to limit employment and investment growth over the remainder of this year.

APR
Capacity Utilisation Capacity Utilisation (%)

65 60

60 55 50 45 40 35 30 25 20

75

Production

CHINESE PMI

50.4

55 50 45 40 35

70

CHINA
65

60

MAR

30

NEW ORDERS AND EXPORTS

The new orders sub-index in the Australian PMI increased by 9.9

65 60 55
Diffusion Index (Points)
Increasing

points to 42.3 points in May (seasonally adjusted). The food, beverage and tobacco sub-sector had an increase in new orders in May (reading above 50), but all other sub-sectors recorded a contraction in new orders in May (unadjusted data). In particular, the metal products; and machinery & equipment sub-sectors both recorded sharper contractions in new orders levels during the month. The exchange rate depreciation through the month of May was associated with a modest rise in the exports sub-index, although at 28.5, it continues to point to a sharp fall in export orders.

WHAT IS THE AUSTRALIAN PMI?

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) is a seasonally adjusted national composite index based on the diffusion indices for production, new orders, deliveries, inventories and employment with varying weights. An Australian PMI reading above 50 points indicates that manufacturing is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. Survey results are based on a rotating sample of manufacturing companies eachmonth. More information can be obtained from the Ai Group website www.aigroup.com.au.

50 45
Decreasing

40 35 30 25 20 15
Aug 10 Aug 11 May 10 May 11 May 12 Aug 12 Nov 10 Feb 11 Nov 11 Feb 12 Nov 12 Feb 13 May 13

Exports

New Orders

EMPLOYMENT AND AVERAGE WAGES

The seasonally adjusted employment sub-index in the Australian

75 70 65
Diffusion Index (Points)

Average Wages
Increasing

PMI rose by 7.3 points to 46.6 in May.

Employment levels contracted most sharply across the metal

60 55 50 45 40 35 30 25 20
Aug 10 Aug 11 May 10 May 11 May 12 Aug 12 Nov 10 Feb 11 Nov 11 Feb 12 Nov 12 Feb 13 May 13

products; and machinery & equipment sub-sectors. Although conditions facing manufacturing remain challenging and manufacturing employment has been falling in aggregate, moderate wages growth continued to be reported by manufacturing businesses in May, with the average wages sub-index moderating to 52.9 points (seasonally adjusted). Wages growth is particularly low in the metal products; machinery & equipment; and food, beverages and tobacco sub-sectors.

Employment

Decreasing

CONTACT
Innes Willox Chief Executive Ai Group Tel 03 9867 0111

Manufacturing inventories contracted again in May, with the

60
Diffusion Index (Points)

May 10

Feb 11

May 11

Feb 12

May 12

Feb 13

Deliveries

Finished Stocks

INPUT COSTS AND SELLING PRICES

Input cost growth moderated further in May, with the seasonally
90 80
Increasing

adjusted input costs sub-index falling 2.3 points to 54.7 points. This is the lowest level for this sub-index since June 2009, reflecting a prolonged period of weak demand, moderating commodity prices and increasing spare capacity in the sector. Selling prices fell for the 26th consecutive month, with the average selling price index recording 41.4 points (readings above 50 indicate an expansion in activity with the distance from 50 points indicative of the strength of the increase). This fall in prices indicates that widespread price discounting continues throughout the sector, as manufacturers seek to compete globally in a very weak demand environment and against ongoing strength of the Australian dollar. The continuing gap between input prices and selling prices is contributing to a worsening profit squeeze in manufacturing, with national data showing manufacturing nominal profits and profit margins tumbling through 2012.

May 13

Aug 10

Nov 10

Aug 11

Nov 11

Aug 12

Nov 12

inventories sub-index in the Australian PMI falling 2.1 points to 44.3 (seasonally adjusted). Inventories contracted sharply across the food, beverage & tobacco products; metal products; and machinery & equipment sub-sectors. The deliveries sub-index declined 2.2 points to 38.9, marking the 15th consecutive month of contraction. In line with reports of declining sales and new order levels, deliveries fell across the food, beverage & tobacco products; metal products; and machinery & equipment sub-sectors.

55 50 45 40 35 30

Increasing

FINISHED STOCKS AND DELIVERIES

65

Decreasing

INTERNATIONAL PMI DATA

Markit Economics www.markiteconomics.com

Diffusion Index (Points)

70 60 50

CIPS Australia www.cipsa.com.au

30 20
May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13

Decreasing

40

Input prices

Selling prices

The Australian Industry Group, 2013 This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation, no part may be reproduced by any process or means without the prior written permission of The Australian Industry Group. Disclaimer The Australian Industry Group provides information services to its members and others, which include economic and industry policy and forecasting services. None of the information provided here is represented or implied to be legal, accounting, financial or investment advice and does not constitute financial product advice. The Australian Industry Group does not invite and does not expect any person to act or rely on any statement, opinion, representation or interference expressed or implied in this publication. All readers must make their own enquiries and obtain their own professional advice in relation to any issue or matter referred to herein before making any financial or other decision. The Australian Industry Group accepts no responsibility for any act or omission by any person relying in whole or in part upon the contents of thispublication.
AIG13084

AUSTRALIAN PMI
May 2013 April 2013 Monthly Change Direction Rate of Change Trend** (Months) 43.8 36.7 7.1 Contracting Slower 23 PRODUCTION 46.1 33.1 13.0 Contracting Slower 14 EMPLOYMENT 46.6 39.3 7.3 Contracting Slower 19 NEW ORDERS 42.3 32.4 9.9 Contracting Slower 9 INVENTORIES 44.3 46.4 -2.1 Contracting Faster 2 SUPPLIER DELIVERIES 38.9 41.1 -2.2 Contracting Faster 15 INPUT PRICES 54.7 57.0 -2.3 Expanding Slower 132 EXPORTS 28.5 24.5 4.0 Contracting Slower 10 SELLING PRICES 41.4 40.3 1.1 Contracting Slower 26 AVERAGE WAGES 52.9 57.0 -4.1 Expanding Slower 49 CAPACITY UTILISATION (%) 68.9 68.6 0.3 Increase - AUSTRALIAN PMI
Further Information Results are based on responses from around 200 companies from a rotating sample of manufacturers. An evaluation of the Australian PMI as well as other economic research and analysis can be obtained from the Ai Group website at http://www.aigroup.com.au/economics. Results for capacity utilisation, average wages and output prices to June 2007 based on quarterly surveys. From this point data will be collected in the monthly PMI survey. ** Number of months moving in current direction. New monthly seasonal adjustment factors were applied in April 2013. New industry classification applied from December 2012 (and back-dated) based on the ANZSIC 2006 coding system and 2011-12 weights. Visit http://www.aigroup.com.au/economics for further economic analysis and information.