The Australian manufacturing and services sectors are both in expansion territory for the first time since January, new CBA data shows.
The latest “flash” CBA Composite Purchasing Managers Index (PMI) released today indicates a marginal increase in business activity in April, helped by modest growth in the services sector.
CBA Senior Economist Gareth Aird said: “This is a soft result, but an improvement nonetheless, and takes the PMI readings into expansionary territory.”
In April, the headline index rose to 50.6, up from 49.5 in March.
While the sectors may be sending positive signals on the outlook for the economy, reported shortages of new work have led to modest reductions in staffing levels for the first time in the survey’s three-year history.
“The main concern for us in the data was the employment sub-components of both the manufacturing and services PMIs. Both readings moved lower and sit in contractionary territory,” Mr Aird said.
Mr Aird said that although the slower momentum appears to have carried over into the New Year, this positive PMI result is encouraging.
“There is scope for the PMIs to push higher over coming months if the personal income tax relief announced in the 2019/20 Budget translates 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.