The manufacturing and services sectors are sending positive signals on the outlook for the economy, says Commonwealth Bank Senior Economist Belinda Allen.
The latest “flash” CBA Composite Purchasing Managers Index (PMI) released today shows the rate of expansion in business activity was solid and the fastest since June, but remained relatively weak.
“Both sectors are expanding and the services sector PMI ticked up after drifting lower in recent months,” Ms Allen said.
In November the headline index rose to 52.9 from 52.0 in October.
“Forward looking indicators still look solid, with the new orders and new business components of the surveys lifting in November. Export orders have picked up in the manufacturing sector after easing over the previous two months.”
Meanwhile, the rate of job creation eased to a three-month low.
“Jobs growth in the manufacturing sector was solid in November. The services sectors is still adding jobs, but at a slower pace in November compared to previous months,” Ms Allen said.
The data shows the weakest rate of input cost inflation in 10 months.
“Input price pressures eased in the month, likely reflecting the fall in oil prices. Output prices eased too. While production growth in the economy remains solid, pricing pressure remains on the softer side”.
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.