By James Glynn
SYDNEY–Australia’s manufacturing sector appears more resilient after a weak start to the year, but price pressures are building in the sector which could alarm the Reserve Bank of Australia, according to Judo Bank.
The Judo Bank Australian manufacturing purchasing managers’ index was unchanged at 49.6 in August from July, remaining at the strongest levels since February.
Warren Hogan, chief economic adviser at Judo Bank, said the indexes for manufacturing output and new orders are only just below 50 and have been building upward momentum over the last three months.
Demand for staff across manufacturing hasn’t abated despite the slowdown in activity earlier in the year. At no point has the employment index dipped below 50 in 2023 and is now moving higher in expansionary territory, he added.
“It is hard to forecast a major slowdown for an economy that continues to generate jobs … there are no indications of a major downturn in overall activity which implies very little chance of a broader recession in the economy over the next six months,” Hogan said.
Still, despite the normalization of global supply chains and an easing of many commodity prices in 2023, manufacturers have reported rising cost pressures over the past three months.
“A weak Australian dollar and rising global oil prices could be part of the explanation, but higher domestic cost pressures cannot be ruled out,” Hogan said.
Domestic energy costs are also still rising, particularly for small and medium-sized enterprises, while labor costs are drifting up in a tight labor market. A 5.75% rise in the country’s minimum wage on July 1 could also be a factor, he said.
Final prices are also responding to cost pressures with the index up 1.5 points to 53.6, the highest index reading since May. It points to sticky inflation at rates which will concern thee Reserve Bank of Australia, Hogan added.
Write to James Glynn at [email protected]
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