Australia’s PMI Manufacturing recorded a mild uptick in July, rising from 48.2 to 49.6, marking a 5-month high, but still falling short of the expansionary threshold of 50. Concurrently, PMI Services took a downward turn from 50.3 to 48.0, hitting a 7-month low. Consequently, Composite PMI, a measure of combined sectors, dipped from 50.1 to 48.3, which is also a 7-month low.

Warren Hogan, Chief Economic Advisor at Judo Bank, attributed the soft July figures predominantly to a dip in business activity in the services sector, which had previously been on a recovery path in 2023. But the “Australian economy remains on the ‘narrow path’ for a soft landing.”

The July Flash report raised some concerns regarding inflation. Despite the slowdown in activity, price indicators trended higher, particularly within the services sector. These inflationary signals remain elevated, pointing to a potential inflation rate of around 4-5%, substantially exceeding RBA’s target of 2% to 3%.

Hogan noted that the disinflationary trend evident throughout 2022 “appears to have ceased”. As such, July figures will provide critical insights into whether Australia’s inflation aligns with the declining trends seen in other countries recently, or if the nation is “set to experience a more sticky inflation trend in 2023/24.”

Full Australia PMI release here.

Australian’s June employment data showed persistent tightness in the job markets. The 32.6k growth in employment significantly surpassed expectations of 15.0k. Employment-population ratio remained at record high. Monthly hours worked outpaced employment growth, suggesting that labor demand was met by people working more hours.

Among the 32.6k job growth, rise of 39.3k full-time employment was offset by a decrease of -6.7k in part-time roles. Unemployment rate remained steady at 3.5%, below expectation of 3.6%. Participation rate dipped slightly from 66.9% to 66.8%. Monthly hours worked rose 0.3% mom, faster than growth in employment at 0.2% mom.

Bjorn Jarvis, ABS head of labour statistics, stated: “The rise in employment in June saw the employment-to-population ratio remain at a record high 64.5 per cent, reflecting a tight labour market in which employment has recently increased in line with population growth.”

He further emphasized that the current labour market is stronger than it was prior to the pandemic. Jarvis elaborated, “In addition to there being over a million more employed people than before the pandemic, a much higher share of the population is employed. In June 2023, 64.5 per cent of people 15 years or older were employed, an increase of 2.1 percentage points since March 2020.”

Jarvis also highlighted the ongoing demand for labour, saying: “The strength in hours worked since late 2022, relative to employment growth, shows the demand for labour is continuing to be met, to some extent, by people working more hours.”

Full Australia employment release here.

Australia’s Westpac Leading Index rose to -0.51% in June from -1.01% in May, marking the eleventh consecutive negative print. This trend indicates that the Australian economy is likely to operate below its potential trend over the six to nine months outlook.

In light of these results, Westpac maintains a modest forecast for Australian economic growth. It expects modest expansion of 0.3% over the year to June 2024, with contraction in consumer spending of -0.2%.

Commenting on the upcoming RBA meeting on August 1, Westpac anticipates a 25 bps hike in interest rate. It noted, “By the August meeting we expect that the Board will be dealing with an inflation read still above 6%; an unemployment rate registering nearly 1ppt below the Board’s current estimate of full employment; and the recent report from the national accounts showing unit labour costs growing at 7.9% over the year.”

Full Australia Westpac Leading Index release here.