Tuesday, 14 July 2020

Commonwealth Bank releases Purchasing Managers Index

The latest Commonwealth Bank ‘Flash’ Purchasing Manager Index (PMI) highlights that Australia’s services and manufacturing sectors have both experienced continued steep declines in business activity in May, with the downturn easing slightly for service providers and intensifying for manufacturers compared to last month.

It appears the easing of some coronavirus restrictions was insufficient to prevent a further sharp drop in demand across the services sector, while manufacturers have cited widespread supply chain delays and issues with imported goods.

The headline Commonwealth Bank Flash PMI Index in May was 26.4, slightly up from 21.7 in April, with the Flash Services Business Activity Index at 25.5, up from 19.5 in April, and Flash Manufacturing PMI at 42.8, down from 44.1 in April. Any reading below 50 signals a deterioration in business activity on the previous month.

Commonwealth Bank Head of Australian Economics, Gareth Aird, said: “Another incredibly weak result that indicates the contraction in business activity observed in April intensified over May. Two consecutive reads in the twenties is simply astonishing as well as concerning. It is likely that only a manufactured slowdown due to imposed restrictions could produce such results.”

Encouragingly, companies are much more confident this month about the 12-month outlook than they were in April, with business confidence in May jumping sharply to the highest in eight months. Sentiment was up in both the manufacturing and services sectors, with anecdotal evidence suggesting that businesses expect output to rise over the coming year as restrictions are lifted and conditions gradually return to normal.

“May should mark the low point in the PMIs and we would expect activity to lift from here on a monthly basis,” Mr Aird said.

“Company views on the economic outlook have improved and the lift in confidence is welcome. That said, it will be a long time before activity returns to pre-COVID-19 levels. And deflationary pressures highlight the huge amount of slack we have now in the economy.”

PMIs provide reliable advance indications of economic growth, employment and price trends. The CBA ‘flash’ PMI is based on around 85 per cent of final survey responses and final indices for May will be published in approximately one week.

Re-disseminated by The Asian Banker

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