Business activity across Australia’s private sector has grown for the second month after the sector experienced the fastest rate of growth and most marked increase for new business since November 2018, according to CBA data.
The latest ‘flash’ CBA Composite Purchasing Managers Index (PMI) released today for June points to “an encouraging result, particularly for the services sector,” according to CBA’s Senior Economist Gareth Aird.
“The uncertainty generated by the federal election has been removed which appears to have had a positive impact on business activity,” Mr Aird said.
In June, the headline index rose to 53.1, up from 51.5 in May. The upturn was led by the services sector experiencing the fastest increase in activity for seven months. Conversely, manufacturers saw only a mild expansion of output production.
“The economy has been in a soft patch, but there are some green shoots emerging. The combination of monetary policy stimulus, forthcoming tax rebates, and strong employment growth has contributed to the sharpest lift in the index since late last year,” Mr Aird added.
Business confidence about output over the year ahead improved to its highest level since January.
“While the overall level of the composite index signals modest growth, we are taking some comfort from the direction the index is heading,” said Mr Aird.
“The growth in input costs points to some margin compression. But if firms can pass on some of those costs due to a lift in demand we may see a modest rise in consumer inflation over the second half of 2019 and into 2020,” Mr Aird added.
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.