The decline in manufacturing of construction materials in Australia has eased, the latest survey has found.
In June Performance of Manufacturing Index (PMI), the construction materials sub-sector registered just over 40.0 (see chart), an improvement on the previous month but still well below the 50.0 mark that separates expanding activity from contracting activity.
That means that whilst the overall level of production in the manufacturing of building and construction materials contracted in June, the pace of contraction eased when compared to that experienced in May.
Likewise, across all sectors, with the Australian PMI rising 4.8 points to 47.2, overall levels of manufacturing activity throughout the country continued to contract in June but did so at a slower pace when compared with May.
Across the board, manufacturers surveyed continue to express concern about the strong Australian dollar, the start of the carbon tax and import competition.
“The contraction afflicting manufacturing extended into its fourth month in June as the high dollar, domestic and global uncertainties, the slump in residential and commercial construction and concerns over the impacts of the carbon tax weighed on the sector” Australian Industry Group Chief Executive Innes Willox says.
Willox does, however, note that an easing of declines in production, new orders and employment in June provides hope for some form of expansion down the track.
PwC Partner – Economics and Policy, Jeremy Thorpe says falling sales prices and continuing wages growth (see below) continues to squeeze manufacturing profit margins, and that a recent fall in the Chinese PMI is concerning for Australian business and manufacturing if this indicates a further slowing of the Chinese economy, with’ negative implications’ for the Australian natural resources sector.
Whilst the PMI report does not show any breakdown of the construction sector, recent reports from the Australian Bureau of Statistics (ABS) indicate that production levels of cement are holding up reasonably well but that manufacturing activity in the production of bricks and tiles is extremely weak.
Also, the continued decline in manufacturing conditions comes amid additional cost pressures as a result of the carbon tax. Though the latest survey indicates that around 40% of manufacturers (and 44% of construction firms) intend to increase selling prices to cover carbon tax costs, this will be challenging in an environment of subdued demand.
Other findings of the June PMI include:
- Of the twelve sub-sectors in the survey, only four posted increases in activity.
- New orders (up 5.6 points to 46.2) continued to decline, but did so at a substantially slower rate when compared with May.
- Compared with previous months, falls in manufacturing employment levels (up 5.8 points to 48.8) largely subsided. Wages, however, continued to rise, with the wages sub-index up 0.7 points to 59.4.
- In a sign of continued pressure on profit margins, selling prices (up 0.4 points to 41.8) continued to fall whilst input prices (down 2.6 points to 61.5) continued to rise – albeit with a slight easing in both the decline in selling prices and the rise in input costs.