JUNE 2013

australiaN pmi
JUNE

MANUFACTURING NUDGES TOWARDS GROWTH IN JUNE

KEy Findings
The latest seasonally adjusted Australian Industry Group

65 60

AUST

49.6

55 50 45 40 35

Jun 10

Sep 10

Dec 10

Mar 11

Jun 11

Sep 11

Dec 11

Mar 12

Jun 12

Sep 12

Dec 12

Mar 13

June 13

eurozone pmi

Australian Performance of Manufacturing Index (Australian PMI) rose 5.8 points to 49.6 in June. At just 0.4 points below the 50-point mark that separates contraction from expansion, if maintained at this level, this will signal that the manufacturing sector is stabilising, after two years of continuous contraction. June 2013 saw the highest level for the Australian PMI since June 2011, which was the last time the Index moved above 50 points. The Australian PMI sub-indexes for production and inventories indicated mild expansion in June, with readings above 50 points. New orders and supplier deliveries were neutral, while capacity utilisation moved back over 70%. Exports continue to struggle, with the exports sub-index only partially recovering from its recent record lows. At just 30.3 points, the exports sub-index continues to signal extremely tough exporting conditions, despite the fall in the Australian dollar. Although exports continue to suffer, the solid improvement in the Australian PMI since May and especially April might already be reflecting the benefits of the fall in the Australian dollar for those who compete against imports. Some survey respondents noted a stronger pick-up in local orders, over and above the usual end-of-financial-year rush. The benefits of the most recent cash rate cuts might also be filtering through, although survey respondents noted that local demand and confidence remain weak.

60
Increasing

MAY

55 50
Diffusion Index (Points)

30

45
Decreasing

MAY

65 60 55

40 35 30 25 20

usa ISM PMI

USA

50

49.0
APR

45 40 35 30

Australian PMI

3 month moving average

MAY

65 60 55

Sectors

Decreasing

Increasing

In three-month moving average terms (3MMA, which lessens

Australian PMI

JAPANESE PMI

the volatility inherent in these detailed monthly data), five of the eight sub-sectors improved in June relative to May. They included: textiles, clothing footwear and other manufacturing; printing and recorded media; petroleum, coal, chemicals and rubber products; non-metallic mineral products; and machinery and equipment. All sub-sector indexes remained below 50 points on a 3MMA basis, due to the extreme weakness of their performance in the preceding two months. Sub-sectors that deteriorated in June (on a 3MMA basis) included the large sub-sectors of food and beverage products and metal products, as well as the smaller wood and paper products sub-sector.

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

EURO

48.3

50 45 40 35

APR

30

MAY

65 60

10

20

30

40

50

60

70

80

90

100

51.5

55 50 45 40 35

Diffusion Index 3 month moving average

May 13

June 13

JAPAN

Production and Capacity Utilisation

The production sub-index in the Australian PMI rose by 4.1

70 65
Production Diffusion Index (Points)

80

APR

30

points to 50.2 points in May (seasonally adjusted). At just above 50 points, this indicates a stabilisation in production levels rather than outright recovery or growth. Although mild, this expansion in production is the first since March 2012 (50.1 points) and its highest reading since November 2011 (50.7). Sub-sectors with a stable production index reading in June (around 50 points in unadjusted terms) included: food and beverages production and petroleum coal, chemicals and rubber production. Capacity utilisation for the manufacturing sector edged up to 70.1% in June (unadjusted), after falling in April and May to levels similar to those recorded during the global financial crisis in 2009. It remains below the average rate of capacity utilisation since 2010 (72.8%). This spare capacity is likely to continue to limit the incentives for capital investment over the rest of this year.

60 55 50 45 40 35 30 25 20
Jun 10 Sep 10 Dec 10 Mar 11 Jun 11

Capacity Utilisation

Capacity Utilisation (%)

75

MAY

65 60

Production

70

CHINESE PMI

49.2

55 50 45 40 35

65

CHINA

60
Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 June 13

APR

30

NEW ORDERS AND EXPORTS

65 60 55
Diffusion Index (Points)
Increasing

The new orders sub-index in the Australian PMI jumped by

another 7.6 points to 49.9 in June (seasonally adjusted), taking it up 17.5 points in just two months. Comments from respondents point to the recently lower dollar as providing a much-needed support to local orders. Last minute end-of-year orders also boosted June. New orders were strongest in food and beverages production and were also up in textiles, clothing and other manufacturing and stable in petroleum coal, chemicals and rubber production. Other sub-sectors showed contractions in new orders, with the metal products sub-sector showing the weakest new orders index. The recent exchange rate depreciation is yet to flow through into a recovery in exports, with the exports sub-index rising just 1.8 points to 30.3. This indicates manufacturing exports are still deteriorating, albeit at a slower rate.

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
Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 June 13

Exports

New Orders

Employment and Average Wages

The employment sub-index in the Australian PMI improved

75 70 65
Diffusion Index (Points)

Average Wages
Increasing

Mar 11

Mar 12

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June 13

marginally in June, rising just 0.3 points to 46.9 points (seasonally adjusted). This index remains at around its recent (mildly contractionary) average level. Employment sub-index levels remain lowest in the metal products; and printing and recorded media sub-sectors. Employment numbers stabilised in food and beverages production and appear to have expanded in the smaller wood and paper products and non-metallic products sub-sectors. Wages growth strengthened again in June (to 53.8 points from 52.9 in May, unadjusted), although the general trend through 2013 has been toward moderating wage pressures across manufacturing, in line with softer labour demand.

60 55 50 45 40 35 30 25 20
Jun 10 Sep 10 Dec 10 Jun 11 Sep 11 Dec 11 Jun 12 Sep 12 Dec 12

Employment

Decreasing

CONTACT
Innes Willox Chief Executive Ai Group Tel 03 9867 0111
Increasing

Finished Stocks AND DELIVERIES

65 60
Diffusion Index (Points)

Manufacturing inventories expanded in June, with the finished

stocks sub-index rising a solid 8.6 points to 52.9 (seasonally adjusted). This was the first rise in inventories since March, following falls in April and May. Stocks expanded sharply in the non-metallic products and wood and paper products sub-sectors (unadjusted), possibly indicating an unexpected build-up. Metal products and printing and recorded media continued to reduce their stocks. The supplier deliveries sub-index shot up by 10.7 points to 49.6 points (seasonally adjusted), its strongest level since February 2012 (52.3 points). Supplier deliveries grew in the food and beverages, printing and recorded media and non-metallic minerals sub-sectors but continued to decline elsewhere.

55 50 45 40 35 30
Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 June 13

INTERNATIONAL PMI DATA

Decreasing

Markit Economics www.markiteconomics.com

Deliveries

Finished Stocks

input costs and selling prices

90 80
Diffusion Index (Points)

Input costs ticked up in June, with the input costs sub-index rising

Mar 11

Mar 12

Mar 13

Input prices

Selling prices

Australian PMI
June 2013 May 2013 Monthly Change Direction Rate of Change Trend** (Months) 49.6 43.8 5.8 Contracting Slower 24 Production 50.2 46.1 4.1 Expanding - 1 Employment 46.9 46.6 0.3 Contracting Slower 20 New Orders 49.9 42.3 7.6 Contracting Slower 10 Inventories 52.9 44.3 8.6 Expanding - 1 Supplier Deliveries 49.6 38.9 10.7 Contracting Slower 16 Input Prices 56.4 54.7 1.7 Expanding Faster 133 Exports 30.3 28.5 1.8 Contracting Slower 11 Selling Prices* 44.8 41.4 3.4 Contracting Slower 27 Average Wages* 53.8 52.9 0.9 Expanding Faster 50 Capacity Utilisation (%)* 70.1 68.9 1.2 Increase - Australian PMI
Seasonally adjusted, *except where indicated. 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.

June 13

1.7 points to 56.4 points (seasonally adjusted). The general trend in 2013 has been toward moderating input price pressures, in line with softer commodity prices and demand. Selling prices fell for the 27th consecutive month, with the average selling price index recording 44.8 points, a similar level to the average for 2012 and 2013 to date. This ongoing gap between (mildly) rising input costs and falling selling prices is indicative of the widespread price discounting in the manufacturing sector, as businesses seek to compete globally in a very weak demand environment. This is putting intense pressure on profit margins and businesses ability to grow and invest.

70 60 50

30 20
Jun 10 Sep 10 Dec 10 Jun 11 Sep 11 Dec 11 Jun 12 Sep 12 Dec 12

Decreasing

40

Increasing

CIPS Australia www.cipsa.com.au

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.
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