Manufacturing recovery slows due to widespread lockdowns in September: Ai Group

Peak employer organisation The Australian Industry Group (Ai Group) has revealed that the Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) has dropped, indicating a weaker rate of expansion.

It said that the index eased by 0.4 points to 51.2 in September, effectively stalling a solid period of recovery since late 2020 (readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion).

Ai Group added that contractions in the machinery and equipment and TCF, as well as paper and printing sectors, and a flat performance in the food and beverages sector failed to offset a return to growth in the building and metal products sectors while the chemicals sector continued to expand although at a more modest pace in September.

Contractions were concentrated in the south-east corner of the country where outbreaks and lockdowns have been more severe.

Ai Group chief executive Innes Willox said, “The recovery in the manufacturing sector over the past year all-but-stalled in September as the impacts of lockdowns and border closures constrained activity in the two largest states.

“While sales and employment were both lower in September, there are bright spots on the horizon with new orders continuing to expand (although modestly) and production and finished stocks both rising at a faster pace than in August. Manufacturers are hoping that the prospect of restrictions being wound back will see a strong lift in performance over coming months.”

Other key findings for September 2021 include:

  • Of the six manufacturing sectors in the Australian PMI, metal products (up 8.7 points to 54.2), chemicals (down 2.2 points to 54.2) and building materials (up 8.9 points to 51.3) expanded in September, partly due to eased restrictions of construction activity in NSW. Food & beverages stalled (down 6.0 points to 50.5), while machinery & equipment (down 2.0 points to 48.4) and TCF, paper & printing (down 6.4 points to 46.9) slid into contraction.
  • Three of the seven activity indices in the Australian PMI fell in September (see table below), with the largest falls in the employment (down 4.3 points to 47.1) and new orders indexes. However, new orders do remain positive (down 5.1 points to 52.0), which augurs well for future growth after lockdowns.
  • The input prices index eased further in September from its record high in July but remained relatively strong (down 3.2 points to 78.1) as manufacturers continue to report high freight costs. The selling prices index edged higher (up 3.0 points to 64.7), suggesting that more manufacturers are passing on some of their costs increases to customers.
  • The average wages index stalled in September (down 9.5 points to 52.9) in the wake of a recent spike in July, when most of the annual wage rises in manufacturing typically occur.

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