Amid weak manufacturing activity overall, activity in the manufacturing of construction materials continues to decline, though that the pace of that decline has eased substantially.
In July, the ‘construction materials’ sub index of the Performance of Manufacturing Index (PMI) came in at just under 50.0 according to data published by the Australian Industry Group (AIG) and PricewaterhouseCoopers (PwC).
At its current level, building materials manufacturing activity is just below the level separating increasing levels of production from decreasing production levels. On the bright side, the figures are substantially above the level recorded in May.
While the PMI does not give a breakdown of individual construction materials, the most recent ABS data available indicates that conditions in cement manufacturing are holding up reasonably well while those in the manufacturing of bricks and tiles are weaker.
Further light will be shed on conditions in different building materials when the ABS releases its full June quarter data on August 10.
The ease in the decline of construction materials manufacturing comes amid an overall deepening in the deterioration of manufacturing conditions throughout Australia.
The overall PMI fell 6.9 points in July to come in at 40.3, reversing an earlier improvement in manufacturing conditions in June.
Worse still, apart from food and beverages, the decline affected all manufacturing sectors across the country.
The impact continues to flow through to workers and shareholders. Amid large-scale job shedding, the seasonally adjusted sub index for employment came in at 38.9 – its lowest level since May 2009.
This means employment levels throughout the manufacturing sector contracted at their steepest pace in more than three years last month.
Furthermore, profit margins continue to decline as input costs rise (to 66.8, up 5.3 points) and selling prices (to 42.1, up 0.3 points but still below 50.0) continue to contract.
AIG chief executive Innes Willox says the July result shows that a number of factors continue to make life difficult for Australian manufacturers.
“The industry is experiencing substantial pressures driven by the strong dollar, cost increases, slow growth in domestic demand and competition from lower cost sources of production,” Willox says. “Manufacturers are responding by reassessing and re-modelling their businesses but, as suggested by another drop in new orders and with the full impact of the carbon tax still to be felt, further falls in overall activity are likely in the months ahead.”
PwC partner Jeremy Thorpe says contracting activity across the manufacturing industry in the US, Japan, China and the Eurozone demonstrates continued weakness in the global economy.