Key findings, December: Australian PMI Composite Output Index (1): 49.9 (November: 50.2) 3-month low. Australian Services PMI Business Activity Index (50.4 (Nov: 50.5). Lowest in 5 months. Australian Manufacturing Output Index (46.1 Nov: 48.3) Lowest in 2 months. Australian Manufacturing PMI (4) 48.2 (Nov: 49.4). Lowest in 2 months. Data collected from 05-12 December 2024
Australian private sector business activity fell slightly
in the final month of 2024, driven by a decline in manufacturing output. New order growth slowed, with export business falling again. Capacity remained tight and firms reduced their workforce capacity for the first time since August 2021.
Despite the easing conditions, optimism rose to a more than two-and-a-half-year high. However, firms were reluctant to pass on cost increases in full, keeping selling price inflation subdued despite intensifying cost pressures. At 49.9 in December, the composite output index fell The seasonally adjusted global purchasing managers’ index (PMI) fell to 50.2 in November and a three-month low. The index indicated that private sector output in Australia fell slightly after two consecutive months of expansion. Business activity fell partly in December and slower growth in services activity was unable to offset a sharp slowdown in manufacturing output. Where manufacturing output fell, manufacturers indicated that deteriorating market conditions affected operations in the goods-producing sector. Meanwhile, growth in services activity was the weakest in the current 11-month sequence, matching that seen in July.
A diffusion index is calculated for each of the manufacturing and services variables. The index is the sum of the percentage of “up” responses and half the percentage of “unchanged” responses. The indexes range from 0 to 100, with a reading above 50 indicating an overall increase compared to the previous month, and a reading below 50 indicating an overall decrease. The indexes are then seasonally adjusted.
Seasonally adjusted new orders index
The decline in business activity came against a backdrop of weaker new business growth. The seasonally adjusted New Orders Index recorded its lowest reading in three months, indicating only a modest increase in new work flows. New business growth remained confined to the services sector, while new manufacturing orders fell at the fastest pace since October. Additionally, domestic demand supported the expansion in new business, while new export business declined again, with a more significant drop than in November.
Meanwhile, backlogs of work were exhausted in December, indicating a lack of pressure on business capacity. The rate of decline in the amount of unfinished work was faster than the average for the year as a whole, despite easing from November. As a result of the lack of capacity pressures, Australian companies reduced their employment levels in December. While decline was marginal, it was the first fall in employment since August 2021. Job losses were most noticeable in the growing services sector, while employment in manufacturing increased for a second consecutive month, albeit at a weaker pace.
Despite the decline in overall business activity and the slowdown in new business growth, business confidence rose for a third consecutive month in December. Firms in the manufacturing and services sectors were more optimistic at the end of year, with hopes that lower interest rates and increased business development efforts would spur growth in 2025. While still below the long-term survey average, the level of optimism was highest since May 2022.
Finally, cost pressures intensified in December, with average input prices rising at faster rates in both the manufacturing and services sectors. Manufacturers and service providers cited higher input material, transport and labour costs as contributing to the recent rise in input prices. As a result of higher input prices
The rate of output price increases was flat from November
Selling prices rose in December However, the rate of output price increases remained steady from November, and was weaker than the pace of input cost increases. December also marked the second consecutive month that output prices rose at a lower-than-average pace. According to survey respondents, some companies chose to partially absorb cost increases in order to support sales amid heightened competition. Commenting on the spot PMI data, Jingyi Pan, Associate Director of Economics, said: “The S&P Global Australia Spot PMI for December reflects a softening in business conditions in the final month of the year.
While the smaller goods-producing sector led the slowdown, growth in services activity slowed markedly to the lowest level recorded since the expansion began in February. “Meanwhile, forward-looking indicators provided mixed signals. While business confidence rose to its highest level in more than two and a half years, new business growth slowed to a marginal pace and the level of unfinished work fell further. Most significantly, employment contracted for the first time since August 2021, including in the growing services sector. “Easing business conditions and muted selling price inflation support the Reserve Bank of Australia cutting rates in the new year, although rising cost pressures will require monitoring to assess their impact on selling prices in the coming months.”
Final December data are published on January 2 for manufacturing and on January 6 for services and composite indices. They are based on responses to questionnaires sent to survey panels of around 400 manufacturers and 400 service providers. Each panel categorizes the sector’s workforce size and companies based on their contributions to GDP. The services sector includes consumer services (excluding retail), transport, information and communications, finance, insurance, property, and business services.
