SYDNEY — The Australian economy continues to cool quickly with Judo Bank’s purchasing managers index for August showing a marked decline.
The Judo Bank Flash Australia composite PMI output index posted below the 50.0 no-change mark in August, falling to 47.1 from 48.2 in July, to indicate a solid reduction in private sector activity.
The rate of decline in business activity accelerated to the quickest since January 2022, the bank said.
The data are consistent with the Reserve Bank of Australia’s recent signaling that interest-rate increases may be over amid signs of a broad slowdown in the resource-rich economy made more concerning by evidence of a worsening slowdown in China’s economy.
Warren Hogan, chief economic adviser at Judo Bank, said the flash PMI readings provide further evidence a cyclical slowdown in the Australian economy is under way with another drop in both the output and new orders indexes.
“We have now seen two consecutive months of sub-50 readings on these critical activity indexes confirming the slowdown in economic growth has continued right through the winter months,” he said.
The previously resilient services industries have displayed the most rapid loss of momentum in activity over the past three months, while Australia’s manufacturing sector has stabilized with activity readings just below the neutral 50 level, he said.
Still, firms are hiring with the employment index up in August at levels comfortably above neutral.
There are also signs that inflation pressures are remaining sticky and may yet trigger further interest-rate increases.
Both services and manufacturing employment expanded in August, confirming the persistence of labor demand and employment shortfalls for many Australian businesses, Hogan said.
“There is the possibility that chronic labor shortages and skills mismatches are keeping the demand for labor elevated despite the cyclical slowdown in the economy,” he added.
Businesses remain confident about the outlook with the future activity index, a proxy for business confidence in the PMI survey, up strongly in August.
The renewed optimism will make it less likely business leaders will look to trim their workforces into a short-lived economic slowdown, Hogan said.
The inflation indicators within the Judo Bank data show a disinflation trend that was evident throughout 2022 has come to an end in 2023 as both input prices and final price indexes have stopped falling in the past six months.
Final prices remain elevated at levels consistent with future inflation of at least 4%, rather than the Reserve Bank of Australia’s desired 2% to 3%.
“It is too early to be confident that wage pressures will not rise above the RBA’s current expectation of 4% annual growth in 2023,” Hogan said.