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Australia: Manufacturing, Commodity Boom Stalling

  • Written by Syndicated Publisher No Comments Comments
    May 6, 2013

    Australia fundamentals deteriorate rapidly as evidenced by a collapse in the PMI Manufacturing Index in April.

     Key Findings
    • Manufacturing activity contracted significantly in April as conditions weakened amid a strong Australian dollar, intense import competition, high energy costs and weak local confidence.
    • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell 7.7 points to 36.7 on a seasonally adjusted basis. (Readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decrease.)
    • This is the lowest level the Australian PMI® has recorded since May 2009, with many of the key sub-indexes also dropping to levels not seen since 2009. The three-month moving average in April fell to 42.2 points from 43.4 points in March.
    • Contractions in activity were recorded in seven out of the eight manufacturing sub-sectors. Significant contractions were recorded in food, beverage & tobacco products; printing & recorded media; non-metallic mineral products; metal products; and machinery & equipment.
    • Sharp declines in production, new orders and employment were recorded in April, while finished stocks and deliveries declined as well, albeit at a more moderate pace.
    • Capacity utilization in the manufacturing sector fell 2.4 points to 68.6 (the lowest level since June 2009), consistent with the overall drop in activity in the sector.
    • Exports continued to contract for the ninth consecutive month, as the exports sub-index fell to 24.5 in April. This was the lowest reading in the history of this sub-index (commencing in 2004).
    • Significant contractions in manufacturing activity were recorded across most States, especially in Victoria where the record of activity fell 8.4 points to 29.1 in April, the lowest level on record.

    New Orders

    The new orders sub-index decreased by 7.0 points to 32.4 points in April (seasonally adjusted). This was the lowest level recorded for this sub-index since May 2009.

    Employment

    The seasonally adjusted employment sub-index decreased by 9.4 points to 39.3 in April, the lowest level since May 2009.

    Inventories

    Manufacturing inventories contracted again in April, with the sub-index falling 4.8 points to 46.4 (seasonally adjusted). The deliveries sub-index declined 7.3 points to 41.1, indicating that deliveries have been contracting since March 2012.

    Via email, Steen Jakobsen at Saxo Bank sent these comments …

     Macro Alert: Australia is seeing significant slow-down.
    1. Australia’s benefit from the Super Cycle in commodities is petering out in 2013. Mining investment to GDP will peak at 8%. This concept is supported by the RBA.
    2. There are significant reductions in pipeline projects due to lower general level of commodity prices and cancellations.
    3. The non-mining economy is weaker and getting weaker
    4. China slow-down hits Australia

    Massive Imbalances

    Please note the massive imbalances in the PMI report. Input prices have been expanding for 131 straight months. Wages have been expanding for 48 months. Selling prices have been contracting for 25 months.

    New orders and exports tell the story. Wages are too high. Margin pressures mount. Employment must drop and it did. The employment index was down a monstrous 9.4 points.

    Labor and Unions Wrecked Australia

    The labor party and unions wrecked Australia. This was invisible for years because a housing boom and China-fueled commodity boom masked the untenable nature of wage and property bubble growth.

    Now, it’s payback time.

    On September 14, prime minister Julia Gillard, leader of the Australian Labor Party will be thrown out of office in a landslide. Unfortunately, it will take years for Australia to recover from the damage caused by Labor.

    Addendum – Comments from Steve Keen

    Steve Keen blames both parties.

    Via email, Keen says “The damage began under Labor with Hawke and Keating, was turbocharged by the Liberals under Howard, and simply maintained by Rudd/Gillard Labor. And unions have lost significant power all the way through–they’ve been bystanders, not active participants. It’s instead been a series of distortions caused by a neoliberal philosophy that is shared by both parties.

    Hmm. Parties talk differently but act the same. Where have we seen that before?

    In the US, it’s on war, bailouts, and spending that always goes up. Romneycare and Obamacare were the same. For political purposes people pretend differences exist when they don’t, except on some social issues.

    Read more at 

    http://globaleconomicanalysis.blogspot.com/2013/05/australia-manufacturing-collapses-as.html#GqWBt6vS69eMoKXb.99

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.
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