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Services and manufacturing bosses upbeat on economy: CBA PMI
By Myriam Robin
A leading indicator of Australian economic activity showed key sectors of the economy growing strongly in the second-quarter - a positive sign after the first quarter's positive but weak 0.3 per cent GDP figure.
But the picture remains patchy. Also on Monday, Australian Bureau of Statistics data showed building approvals falling by more than expected in May. Meanwhile, ANZ job ads rose 2.7 per cent in June - showing some sectors of the economy are still growing demand.
A key leading indicator of Australian economic activity showed the economy growing strongly in the second quarter.Credit: Jessica Shapiro
The figures will provide a hopeful, if complicated picture for the Reserve Bank to digest at its monthly monetary policy meeting on Tuesday. All of the 24 economists polled by Bloomberg still expect it to keep rates on hold, despite many of the world's leading central bankers having given public comments last week that appeared to prime the market for an end to loose monetary policy.
The Commonwealth Bank's new Purchasing Managers Indexes, released for the first time on Monday in partnership with global financial analysis firm IHS Markit, showed uniform growth across manufacturing and services.
PMIs are closely followed, leading indicators of economic activity conducted around the world, and work through surveys of businesses asking whether their output was higher, lower or unchanged on the previous month. A figure greater than 50 shows economic expansion, and both the manufacturing and service indexes were strong.
In June 2017, the services PMI showed a figure of 57.0, up from May's 54.8.
"Both activity and new business rose at stronger rates, whilst increased workloads encouraged companies to take on additional staff," CBA's report on the index stated.
"Although input costs continued to rise, inflation was the lowest in 14 months, and companies raised their own charges marginally. Buoyed by trends in demand, optimism regarding the future hit a new survey high".
Meanwhile, in manufacturing, the index stood at 56.2 in June, up from 55.9 in May.
"Demand and market activity were both reported to have strengthened since May, and this placed further pressure on manufacturers' capacity. With manufacturers confident that growth will be sustained, employment, purchasing activity and stock building were all subsequently increased."
For their part, building approvals plunged 5.6 per cent in May, following a 4.4 per cent rise in April, and well below predictions of a 1.3 per cent fall. Over the year, approvals slid 19.7 per cent.
But house prices rose - by 1.8 per cent in June in capital cities, according to CoreLogic figures also released on Monday.
The ANZ job ads provided some cheer. The measure of advertised jobs rose 2.7 per cent in June, after a 0.4 per cent rise in May, showing some improvement in the labour market. Whether or not this feeds through to income growth remains to be seen.
CBA chief economist Michael Blythe said while Australia has maintained a long streak of economic growth in recent years, there was something of a "gap" in the economy.
'When you talk about production, it's quite solid. But we do know that production isn't really generating much in the way of income growth.
"What was interesting was that there were some hints from respondents of some pressure coming through on wages. But it's all very tentative. The story isn't necessarily a one-way thing."
Monday's PMI survey had been running for 12 months, and in that time had recorded consistently strong figures.
"What it tells you is that the first quarter was a bit of an aberration," he said. "Things like weather probably had a lot to do with it, but the underlying economy was in pretty decent shape during that period, and in the June quarter.
"That said, the weather story hasn't fully run its course. The GDP figures could still be softer than we like to see. But the message is the same - key parts of the economy are growing."