The Judo Bank preliminary January PMIs suggested that private sector output across the economy is contracting. The manufacturing PMI fell below 50 to 49.8 for the first time since May 2020. While the services PMI improved to 48.3 from 47.3, a 3-month high, it is pointing to an easing of demand pressures and a slowdown in GDP, which is likely to be welcomed by the RBA. The composite index improved slightly to 48.2 from 47.5.

• Price indicators remain elevated with input costs rising due to higher staff, energy and raw material costs. They were able to pass this through to customers with the output inflation index moving higher in January.
• Despite both the manufacturing and services PMIs being below 50, Judo Bank notes that the RBA may think that the PMI is not slowing enough to bring inflation back to target and that the risk is that inflation “remains stubbornly high”. Judo Bank expects 25bp hikes in February and March followed by a pause and the chance of further tightening later in the year if “the economy and inflation prove more resilient”.
• The improvement in services was driven by better demand, including from overseas. Whereas manufacturing was weighed down by supply issues and less new business, including export orders. Business confidence remained positive but moved further below the historical average, as respondents worry about higher rates, inflation and the growth outlook, but were more positive on China.
• Employment rose in both manufacturing and services due to staff shortages, despite a very tight labour market and slowing activity.
• See PMI press release here.

Source: MNI - Market News/Refinitiv/Bloomberg/Judo Bank