All 12 manufacturing sectors in Australia including machinery, equipment and metal products declined production during November, with the Australian Industry Group and PricewaterhouseCoopers recording a second consecutive new low for the industry.
The Australian Industry Group – PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) monthly report showed manufacturing activity fell for the sixth consecutive month in November, by 7.7 points to 32.7, which is “well below” the key 50-mark which separates expansion in the industry from contraction and downturn, according to the report.
While during October three of the 12 manufacturing sectors reported increased activity from the previous month, November saw all 12 sectors plummet, with construction materials and textiles at the bottom of the pack, with chemicals, petroleum and coal not far behind.
Australian Industry Group (Ai Group) chief executive, Heather Ridout, said the downturn is a result of accelerating loss of consumer and business confidence, driven by worsening news on the global economy, falling household wealth, and the weak housing sector, causing a falling demand for manufactures.
“Manufacturing is clearly feeling the impact of the downturn in confidence and activity with this month’s steep fall in the Australian PMI following a similarly steep fall the previous month,” she said.
Ridout warns that the worst part of the retracted PMI result is that new orders for manufacturing have lessened, indicating a bad start for the new year for manufacturers.
“The decline in the November Australian PMI comes on the back of an already weakening trend in activity. Of particular concern is the alarming fall in new orders. This does not auger well and suggests a poor end to 2008 and an equally weak start to the new year,” she said.
“Companies are doing a deep dive into their businesses in an effort to cut costs in order to ride out the downturn. Consistent with this, employment is under pressure.”
PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said wages have begun to steady though, which is good news for manufacturing employees. But the climate is still worrying, he said.
“Manufacturing remains under severe pressure as business and consumer confidence continues to wilt. Although wages and input costs growth have begun to ease moderately, markets are weakening under the weight of slower world and Australian demand for manufactured products making falling profitability a clear risk over coming quarters. Overall cash flow is likely to remain tight,” he said.
“In these conditions, where most markets for products are softening, cost control and profit improvement measures is a key element of short-term business planning to preserve margins.
“Tight control of operational and administrative costs is vital, particularly when lower production volumes mean higher unit costs. Looking beyond the current downturn though, continued development of global supply chains and improvement of skills bases, as well as operational and product innovation are the key to manufacturing firms’ long-term competitiveness and growth.”