Growth in the manufacturing sector in Australia is outpacing demand for services, new CBA data shows.

The latest “flash” CBA Composite Purchasing Managers Index (PMI) released today shows that while manufacturing production increased at a faster pace in January as a result of growth in new orders and export business, service sector growth has softened.

In January, the headline index fell to 51.5 from 52.9 in December.

CBA Chief Economist Michael Blythe said: “The Flash PMI shows that the Australian economy entered 2019 on a weaker than expected note.”

Mr Blythe said that although business activity has slowed in recent months, there are positive signs in the detail.

“Turns in the Manufacturing PMI tend to lead turns in the Services PMI by two months. The leading new orders and employment indexes are also sending a more positive signal than the headline PMI,” he said.

Both sectors also indicated an increase in business confidence amid easing inflationary pressures.

“Despite concerns about trade war risks, export orders are holding up. Lower fuel prices are now having a restraining influence on business input costs,” said Mr Blythe.

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.