The impact of the downturn in building and construction throughout Australia continues to flow through to manufacturers as the latest figures show yet another fall in activity with regard to the manufacturing of building and construction products last month.
In September, construction materials manufacturing contracted again, according to the Performance of Manufacturing Index (PMI) report, with the pace of this contraction even increasing slightly when compared with August.
Manufacturing activity in the production of construction materials has now fallen every month since April.
Worse, with the latest figures showing wages and input costs rising – albeit at a decelerating pace – and selling prices falling, profit margins across the manufacturing sector remain under enormous pressure.
For the building and construction industry, this raises significant fears of a hollowing out in the domestic supply chain. Already, in the steel making industry, BlueScope is taking losses and steel makers have had to make savage cutbacks regarding capacity. More recently, with the 137-year-old Gunns Ltd having gone into administration, there is evidence of trouble in the forestry and timber industry.
To be sure, some manufacturers are making the best of a bad situation. Paint maker Dulux, for example, has used current market conditions as an opportunity to snap up construction products manufacturer Alesco at the bottom of the building cycle, at what the latter company’s board complains is a bargain basement price.
Overall, however, construction products and equipment manufacturers, like their customers, are struggling.
The story is the same across almost every other manufacturing sector around the country, as they grapple with a combination of a weak domestic economy and strong import competiton as a result of the strong dollar.
With the overall PMI coming at 44.1, down from 45.3 and well below the 50.0 level separating expanding activity from contracting activity, the overall level of manufacturing activity throughout Australia contracted again last month, with almost every sector sharing in the decline.
Worse, noting a decline in the new orders index (44.3), Australian Industry Group chief executive Innes Willox says he expects little improvement in the immediate future.
Though not explicitly calling for further interest rate cuts, Willox hints at this being a good idea in the absence of inflationary pressures.