There are signs of a pick-up in business activity following a recent period of economic slowdown across Australia’s manufacturing and services sectors, new CBA data shows.
The latest ‘flash’ CBA Composite Purchasing Managers Index (PMI) released today points to a return to growth in output across Australia’s manufacturing and services sectors in May, following no change in the previous month.
Producing ‘flash’ estimates of the CBA PMIs reflects the need for up-to-the-minute data on the economy and Senior Economist Belinda Allen said the data for May was a positive result.
“The improvement takes the PMI readings higher above 50 signalling an expansion of economic activity and is the highest level since December 2018.
“The economy clearly softened over the second half of 2018 and into 2019. A strong rebound in the services PMI is encouraging as is a small improvement in the manufacturing PMI,” Ms Allen said.
In May, the headline index rose to 52.2, up from 50.0 in April, with overall growth driven by the services sector’s solid rise in activity.
“Input prices remain lower than a year ago but did lift in the month,” she added.
Looking to the months ahead, Ms Allen said: “There is scope for the PMIs to push even higher over coming months from the expected RBA rate cuts in combination with the personal income tax relief announced in the 2019/20 Budget.
“This should boost disposable income and translate into a lift in consumer demand.”
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.