In an apparent turnaround in fortunes, the building materials sub-sector has soared to the top of the manufacturing table, expanding at a blistering pace in April even as a high dollar and rising energy prices hit production levels in almost every other manufacturing sub-sector.
Overall, the latest Performance of Manufacturing Index report (PMI) published by Australian Industry Group and PwC Australia shows that levels of manufacturing activity plummeted in April. Across all sectors, the PMI index came in at 43.9 – well below the 50.0 level which separates expanding manufacturing activity from contracting activity.
All categories bar two registered either no growth or declining activity during the month, with textiles, basic metals and wood products and furniture leading the decline.
The PMI also showed that the impact of weak activity and pressure on costs is flowing through to workers and owner/shareholders of manufacturing firms through weaker employment and pressure on profit margins.
Following a string of job cut announcements, the employment sub-sector across manufacturing slumped to 46.9 after having bobbed up above 50.0 in the previous three months, indicating a significant contraction in staffing levels in April. Meanwhile, input costs (60.9 on the index) continued to rise while selling prices (44.3) continued to fall, indicating continued pressure on margins.
Contrasting with the overall picture, however, the news for building and construction was excellent. Having returned to expansion only in March after many months of decline, the sub-index for construction materials climbed to 64.3 last month, indicating a very strong month in production.
Also, the PMI report says new orders for construction materials also rose strongly in April.
Apart from construction, paper, printing and publishing was the only other sub-sector to experience expanded manufacturing activity last month (see chart).
Overall weakness ‘cause for concern’
Australian Industry Group Chief Executive Innes Willox says April’s overall figures are worrying.
“While it is a reading of only one month, the steep fall in manufacturing activity in April rings true and is of serious concern,” Willox says. “The fall in the Australian PMI is consistent with what we are hearing from Ai Group members and a range of other data. Manufacturers continue to be adversely affected by the strong dollar, comparatively high unit labour costs and rising energy prices”.
Meanwhile, PwC partner Jeremy Thorpe says April’s fall in production and employment throughout the industry was not unexpected given the flood of job cuts. Given the extent to which job cut announcements are continuing, Thorpe warns that continued declines in manufacturing activity are likely to continue irrespective of any May rate cut.
Construction improving but still subdued
Meanwhile, a separate report released by the Australian Bureau of Statistics last Friday highlights that production levels of some construction materials remain subdued by historic standards – albeit with production having increased over recent months.
That report shows that compared with the same period last year and the year before, production levels of pre-mix concrete were steady throughout Australia in the March quarter this year while those of plasterboard were well down. In total, the report says, an estimated 5.301 million cubic metres of pre-mix concrete was produced in the three months to March, compared with 5.322 and 5.268 million cubic metres for the same period in 2011 and 2010 respectively; in plasterboard, the 33.291 million square metres produced in the March quarter was well down on previous corresponding figures of 36.280 million and 34.847 million square metres for 2011 and 2010.
A more complete breakdown of production for different types of construction materials will be available when the ABS releases its next report on May 11.
