Early data for November points to disappointing business activity

Challenges faced by Aussie businesses are evident, according to CBA Chief Economist Michael Blythe.

Early data for November released today by CBA points to modest falls in business activity across both the manufacturing and services sectors, the first time that both have seen a contraction in the same month since the surveys began in 2016.

Commenting on the latest ‘flash’ CBA Composite Purchasing Managers Index (PMI) for November, CBA Chief Economist Mr Blythe said: “Activity in the key manufacturing and services sectors continues to bounce around the 50 line that separate expansion from contraction. This is a particularly disappointing result when benchmarked against interest rate cuts, tax cuts, rising house prices and a still solid labour market”.

The Flash Composite Output Index was down to 49.5 from 50.0 in October, with the rate of growth in both services and manufacturing activity decreasing slightly in November, down from 50.1 to 49.5 and from 50.0 to 49.9 respectively. Readings above 50.0 signal an improvement in business activity on the previous month and those below 50.0 show deterioration.

Mr Blythe also noted that: “Readings on new orders and employment offer a glimmer of positive news.

“But the challenges faced by Australian businesses are evident in the accelerating growth in input prices and the slowing trend in output prices. Competitive pressures and weak demand are taking a toll”.

Why are PMIs important?

The PMIs are important because they cover key areas of the economy.

They are part of the global suite of PMI releases published by IHS Markit.

Manufacturing activity tends to be cyclical in nature, so turning points in the CBA Manufacturing PMI can provide early warning signals of turns in the business cycle more generally.

Services activity tends to be less cyclical and is on a long‑run structural uptrend, so the level of the CBA Services PMI is important when assessing the resilience of the Australian economy more broadly.

How are the PMIs calculated?

The PMI surveys cover senior purchasing managers in 400 Australian companies in the manufacturing and service sectors each month. The survey began in May 2016.

Manufacturers are surveyed each month on how output, orders, jobs, delivery times and stocks have changed relative to the previous month.

The survey results are presented as diffusion indexes. These indexes have leading indicator properties and show the direction of change. A reading above 50 indicates expansion. The further above (below) 50, the stronger the expansion (contraction).

The CBA PMI surveys cover manufacturing and services, or close to 75 per cent of GDP [gross domestic product].

The ability to access 80‑85 per cent of survey results earlier means that reliable ‘flash’ estimates can be published sooner. It brings the Australian survey into line with flash estimates for the Eurozone and Japan.

Read the latest flash PMI report.

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