PMI Shows Rising Labour Demand And Price Pressures

Australia’s Judo Bank preliminary composite PMI for February returned to growth territory driven by the services sector. It came in at 51.8 up from 49.0 in January with services recovering to 52.8 from 49.1. Manufacturing activity contracted at 47.7 down from 50.1. Composite selling prices picked up in Q1 2024 after easing in Q4 2023, signalling that early 2024 inflation may look more persistent around 4-5%, according to Judo Bank, suggesting RBA easing is some way off.

• The quarterly average PMI has oscillated around the breakeven-50 mark since Q3 2022. The Q1 2024 average is in line with that implying the continuation of sluggish but positive growth.
• Business confidence declined in February on rate and inflation concerns but it remains positive. Rising costs continue to weigh on sentiment.
• Services printed at their highest since April driven by stronger new business which drove higher employment and output growth. But that meant firms had the pricing power to pass on higher labour and input costs to customers. Selling price inflation picked up at an above-average pace. Sticky services inflation remains a problem and the RBA has said it needs to come down so that it can meet its inflation target.
• Judo Bank notes that the positive employment index indicates rising labour demand and so February employment is likely to jump after the weak January result.
• Manufacturing activity contracted at a rate in line with Q4’s due to a drop in new orders driving production down at its fastest rate since the pandemic. The sector is being impacted by higher rates and low demand, including from overseas, and cut employment in response. Higher raw material and transport prices drove overall costs higher.
• Manufacturers reported delays due to attacks on shipping in the Red Sea and recent industrial disputes in Australian ports.
• See Judo Bank report here.

Source: MNI - Market News/Refinitv/Bloomberg