Latest data from the Australian Industry Group (September 2014) shows that Australian manufacturing has contracted for two consecutive months.
However, the same data also shows that despite growing more slowly in September than it did in August, the wood and paper products sector has been growing without a break for more than a year.
The AiG’s Performance of Manufacturing Index ( Australian PMITM) is a survey tool that measures the performance of the manufacturing economy.
The Australian PMITM is a doubly valuable tool because it is measured consistently across almost all significant manufacturing economies. This allows for analysis of the relative performance of manufacturing in major economies.
At the outset, it is important to clarify how the PMITM works. Using a survey of manufacturers, it measures growth or contraction of sectors on a range of indices.
The indexing means that results below 50.0 indicate contraction, while results above 50.0 indicate expansion. The further from 50.0, the sharper the contraction or expansion.
Broadly, the indices (and the performance of each) for all manufacturing in September 2014 are:
- Production (-3.8 points to 42.5 points)
- New orders (-3.0 points to 45.8 points)
- Sales (-3.2 points to 46.0 points)
- Employment (+1.2 points to 49.0 points)
- Supplier deliveries (+4.1 points to 51.8 points)
Each of these indices is measured for the industry sectors and a combined index created for each sector.
Although it’s a small sector, the Wood & Paper Products sector continues to expand more strongly than any of the other sectors, including the largest, Food, Beverages & Tobacco sector.
Although it declined by 3.1 points, the Wood & Paper Products sector still recorded 63.2 points. Details suggest that of the indices, only ‘new orders’ may have been below 50.0 points.
Few of FWPA’s stakeholders need to be advised of this, but the expansion is reportedly directly related to increased construction activity, which is driving increased demand for wood products.
Of more interest is the attribution of the growth in paper products to expansion in demand for fibre-based packaging. That growth is directly linked to the Food, Beverage & Tobacco sector, which is Australia’s largest manufacturing sector and is a major customer of the packaging industries.
It is worth reflecting on the position of the sector. As the Australian PMITM data demonstrates, the Wood & paper Products sector depends on demand for other industries (housing, construction and packaging) for much of its own demand.
In contrast to Australian manufacturing’s overall contraction, it is relevant to note that the headline comparable indices in the USA, Eurozone, UK, Japan and China all show expansion. Growth in US manufacturing is the highest, recording a sizable 57.9 points in September 2014.
For further details on the Australian Performance of Manufacturing Index, click here.
