The pace of manufacturing contracted across the country in June, according to a survey of companies, despite government spending giving some industries a boost.
“Australia’s manufacturers reported the weakest conditions in almost three years in June,” Ai Group chief executive Innes Willox said after the release of the Australian Performance of Manufacturing Index on Monday.
The PMI fell 3.3 points to 49.4, dipping below the 50-point mark separating expansion and contraction in activity, bringing an end to 33 consecutive months of steady or positive results since August 2016.
The survey results suggested increased federal government spending was offsetting a decline in demand in the broader economy for manufacturers in the building, machinery and metals sectors.
“Respondents selling (building-related) products to government customers reported strong conditions but other respondents reported worse conditions in June due to slower residential building activity,” the AiG report said.
“Heavy industrial manufacturers continue to report weak conditions except for those selling machinery and equipment into the mining and defence sectors.”
The report said prices for manufactured items were steady or lower in June.
“Some respondents noted that the recent deceleration in demand across the economy has increased competition for manufacturers, many of whom have responded with price discounting to keep orders and production moving,” it said.
The PMI’s selling prices index fell 2.8 points during the month to 49.6, the first drop below the 50-point threshold this year.
A slump in retail spending was thought to be behind a further contraction in activity for textiles, footwear and printing manufacturers, with little prospect of improvements for the sector anytime soon.
“Respondents reported a fall in local sales due to lower household spending on discretionary items and home improvements in June,” the report said.
“New orders were weak in June, suggesting this sector could slow even further in the coming months.”
Mr Willox said manufacturers were looking to actions from the Reserve Bank of Australia and government policies to help the outlook for the industry.
“Manufacturers will be hoping that the combination of lower interest rates and personal income tax cuts translate into higher domestic demand over coming months,” he said.
The previous month’s PMI survey had indicated that the industry anticipated improved conditions once the May 18 federal election was out of the way.