Australia’s August PMI data showed a concerning decline across sectors. The Manufacturing PMI slightly decreased from 49.6 to 49.4, while Services PMI dropped to a 19-month low of 46.7. Composite PMI, reflecting both sectors, also declined to a 19-month low of 47.1.
Warren Hogan, Chief Economic Advisor at Judo Bank, drew attention to the employment sector’s resilience. He noted, “Despite weakening PMI figures, the employment index remains positive, indicating robust labour demand across both manufacturing and services.”
With businesses maintaining optimism, they might resist workforce reductions even amidst economic slowdowns. “As aggregate demand is supported by ongoing employment growth… it might mean a further substantial lift in interest rates could be required at some stage in the next 6-12 months,” he added.
Inflation remains a key concern. After 2022 disinflation trend, 2023 has shown a halt in the falling price indexes. The current data suggests an inflation rate of about 4%, overshooting the RBA’s 2-3% target range.
Hogan also noted wage growth concerns. Even with modest official growth figures, he cautioned that wage pressures might exceed RBA’s forecasted 4% annual growth for 2023. “This may mean firm tightening bias to the RBA’s policy deliberations for the rest of the year.”
