Activity in the manufacturing of construction materials fell back again in May after having registered previous strong showings over recent months.
Following an exceptional result in April, where the manufacturing of building and construction materials expanded even as almost all other sectors experienced declines in activity, the sub index for construction materials in the latest Australian Industry Group – PwC Performance of Manufacturing Index (PMI) plummeted a whopping 26.7 points from 64.3 in April to 37.6 in May.
At this level, the index is well below the 50.0 point which separates expanding activity from declining activity. Construction materials has now turned from being the best performing sector of manufacturing in April to being the third worst performing sector in May.
Building materials was not alone. With the broader PMI falling 1.5 points to 42.4, the overall level manufacturing throughout Australia across all industries fell at its steepest rate for nine months – the third such consecutive fall.
And with new orders falling in May at their steepest pace since July last year, there is little sign of any imminent improvement.
Just as worryingly, costs continue to climb at an increasing rate even as demand and selling prices are falling at their fastest rate on record.
The sub-index for average input prices across all manufacturing sectors rose 3.2 points to come in at 64.9 whilst average wages rose 1.3 points to reach 60.1 – both well above the 50.0 level separating rising costs from falling costs.
The selling price index, meanwhile, dropped 2.7 points to 41.4 – the lowest level on record.
As also expected, given recent announcements of large-scale layoffs, employment levels throughout the sector (43.0 on the index) fell for the second consecutive month. Given current weak manufacturing conditions, the outlook for employment in this sector remains bleak.
Australian Industry Group Chief Executive Innes Willox says manufacturers continue to be hit by poor demand, the strong dollar, stiff competition from imports and the impending carbon tax.
“The difficulties facing manufacturers intensified in May” Willox says.
“The RBA’s reduction in the cash rate early in the month and the slip in the dollar over recent weeks should have positive impacts over the next few months. Nevertheless, these factors were swamped in May by renewed household caution in the face of international and domestic uncertainties and weakness in residential and commercial construction.
“As well, the fundamental structural pressures facing non-mining trade exposed industries such as manufacturing continued to bite”.
PwC Partner – Economics and Policy, Jeremy Thorpe says the latest figures show a tension between employment and wages in manufacturing, as employment falls but wage levels remain strong, posing yet another challenge to the industry.
Whilst the PMI report does not give any indication of how any individual areas of construction manufacturing are performing, a recent report from the Australian Bureau of Statistics suggested that cement manufacturing was doing reasonably well but that manufacturing activity in bricks and tiles is extremely weak.