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Mirabile dictu: Manufacturing expansion!; AIG manufacturing PMI
Topic Started: 1 Aug 2014, 11:19 AM (373 Views)
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AIG manufacturing PMI:
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The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) moved into positive territory this month, following eight months of contraction between November 2013 and June 2014. The index increased by 1.7 points, to 50.7 points (seasonally adjusted), indicating broadly stable conditions across the manufacturing sector. The threemonth- moving-average also edged higher in July, to 49.6 points, indicating very mild contraction.

Many respondents to the Australian PMI® expressed renewed concern about the stronger Australian dollar, which has increased import competition and lowered demand and selling prices for locally made products again this month. Meanwhile, wages and input costs continued to grow, placing extra pressure on manufacturing businesses’ margins.

Across the eight manufacturing sub-sectors in the Australian PMI®, only the large food and beverages (51.7 points) and the smaller wood and paper products (67.2 points) sub-sectors expanded in July. The metal products, machinery and equipment, and petroleum, coal, chemicals and rubber products sub-sectors continued to contract (i.e. below 50 points).

Four of the five activity sub-indexes were above 50 points in July, but they were only pointing towards a stabilisation or very mild expansion in conditions at best. Both the stocks and sales sub-indexes remained in contraction this month (i.e. below 50 points). More positively for the outlook, the new orders sub-index of the Australian PMI® stayed above 50 points (i.e. expansion) for the third month in July. Conditions deteriorated for manufacturing exports, reflecting the ongoing strength in the Australian dollar, which currently sits at around US$0.94.
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Glenn Stevens
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When it comes to manufacturing, one of the big issues of the day, obviously, was the car industry. The strong dollar is widely blamed, if you like, for problems of the car industry. And one of the arguments is that, unless we continue to subsidise it heavily from taxpayers, we will lose the car industry and if we lose it here, that will be very damaging to the economy. I don’t want to buy into the current controversy about the car industry very much at all. I think one could observe that the Australian car industry has been in structural change for quite a long time, at many different exchange rates, including ones much lower than we presently see. So while, no doubt, the level of the exchange rate in recent years has, I’m sure, accelerated or brought forward problems that were going to come, I don’t think it’s just about the exchange rate. One would have to observe, wouldn’t you, that we’re a pretty small market and it’s going to be a tall ask for any producers to share a small portion of what’s a pretty small market if you’re not part of some bigger global chain.

I think the other thing to say is that there is, surely, a future for manufacturing in the country, and you could list — and Philip Lowe at one stage, gave a speech where there was a list of very innovative, smaller, of course, manufacturers who were doing well. We make ailerons for Boeings in Melbourne — that's hi-tech. I don’t think we’re in that space because we’re cheap labour — we're actually good at what we do. They have excellent innovation and technology, and I can’t see why there isn’t a future for various kinds of manufacturing like that.

That’s a separable question from the car industry, per se, and I don’t want to weigh into it.
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