The drop from 52.0 to 49.6 points to softer factory momentum, with the fall in new orders the signal most likely to draw attention because it reverses two months of improvement. The mix is awkward for rate and growth debates: weaker demand and job losses argue for patience, but oil, raw material and freight costs are still elevated and supplier delays are lengthening as the Middle East war disrupts shipping. That keeps oil and transport costs in focus as a channel through which the conflict feeds into Australian producers, even though the rate of input inflation eased a little. This is one survey of one sector, so markets will want confirmation from services and broader activity data before changing their view of the economy.
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Australian factories slipped into contraction as new orders fell for the first time since June, with job cuts, weaker output and Middle East supply disruption all adding to the pressure.
Summary:
Australia's manufacturing sector lost momentum at the end of the third quarter, with the S&P Global Australia Manufacturing PMI falling to 49.6 in September from 52.0 in August. A reading below 50 signals contraction, and this marginal decline was nevertheless the sharpest in 21 months.
New orders were the main driver, falling for the first time since June as intense competition, rising prices and weaker underlying demand weighed on sales, according to survey respondents. New orders from abroad also fell after rising in August. Output declined for a second straight month and at the fastest pace since December 2024, as producers scaled back production in response to the drop in work.
The weaker demand flowed through to the labour market. Manufacturing headcounts fell marginally, the first decline in five months, with anecdotal evidence pointing to both resignations and redundancies. Backlogs of work fell for a seventeenth consecutive month, which the survey reads as a sign of spare capacity. Manufacturers also cut purchasing at the sharpest rate in four months, and stocks of purchases fell. By contrast, stocks of finished goods rose for the first time in eight months, reflecting both a lack of demand and delays in outbound shipments.
Supply conditions worsened further. Supplier delivery times lengthened by more than in August as the war in the Middle East continued to disrupt international shipments, with severe weather around North Asia also cited as a cause of delays. Input prices rose again, particularly for raw materials, oil and transport, although the rate of inflation eased slightly from August. Firms passed on only part of the extra cost to clients because of heightened competition, and the increase in selling prices was the slowest in seven months.
An S&P Global economist said the fall in new orders showed that demand had yet to stabilise after improving over July and August, and that hiring trends were worth watching given that business confidence also declined. Despite easing price pressures, she noted, goods producers still faced elevated costs and a deterioration in supply conditions, leaving firms operating in relatively challenging conditions.
Australian manufacturers nonetheless remained positive on the 12-month outlook for production, expecting business development plans and new products to lift sales. The degree of confidence slipped to a four-month low, however, after the latest fall in new orders. The survey data were collected between 10 and 24 September.
This article was written by Eamonn Sheridan at investinglive.com.
Source: Investing Live - News
