Judo Bank / S&P Global flash PMIs for Australia in August 2023 are both poor. Manufacturing and Services remain in contraction for a second consecutive month.
Commentary from the report, in brief:
- a cyclical slowdown in the Australian economy is underway with another drop in both the output and new orders indexes
- the employment index has picked up and is now again comfortably above the neutral level
- confirming the persistence of labour demand
- we are probably witnessing some labour hoarding by businesses who are not convinced that the current slowdown in activity will be long-lasting. There is also the possibility that chronic labour shortages and skills mismatches are keeping the demand for labour elevated despite the cyclical slowdown in the economy
- Businesses remain confident about the outlook with the future activity index, a proxy for business confidence in the PMI survey, up strongly in August
- A stronger labour market reduces the probability of a lasting slowdown in economic activity, as aggregate demand is supported by ongoing employment growth
- The inflation indicators are not moving in the right direction. The disinflation trend that was evident throughout 2022 has come to an end in 2023 as both input prices and final price indexes have stopped falling in the past six months. Final prices remain elevated at levels that we judge to be consistent with inflation of at least 4%, rather than the RBA’s desired 2% to 3%.
The Reserve Bank of Australia will be happy about the strong demand for labour given that one of its two mandates is full employment. They'll be less happy about persistent inflation pressure, the 2% inflation target is still way out of reach.
AUD is barely moved.