Manufacturing continues to flatline: Economy roundup

Higher fuel, metal and finance costs saw Australian manufacturing activity decline in July, the second consecutive month of contraction for the sector.

Higher fuel, metal and finance costs saw Australian manufacturing activity decline in July, the second consecutive month of contraction for the sector.

The Australian Industry Group-PricewaterhouseCoopers Performance of Manufacturing index fell 0.1 points to 46.9 in July, pushing it further below the 50 point line separating growth from contraction.

Manufacturers reported a fall in inventories and new orders, suggesting activity in the sector is likely to remain at low levels for some time to come.

Rising costs are putting manufacturers’ profit margins under serious pressure, according to PWC’s global leader manufacturing Graeme Billings.

“The pressures flowing from slower market growth, rising input costs and the ongoing strength in the Australian dollar are a mix of both cyclical and long-term factors affecting profit margins,” Billings says.

But if parts of the Australian economy are beginning to look a little wobbly, spare a thought for business owners in the US. The world’s biggest economy is teetering on the very brink of recession, with GDP there falling by 0.2% in the final quarter of 2007 before lifting to record modest rises in the first half of 2008.

And most analysts expect slower times to come, a view reflected in US Commerce Department data showing businesses reduced inventories at the sharpest rate since the end of 2001 in July.

And there are troubles afoot in the European Union, too, with July’s annualised inflation figure of 4.1% the highest recorded in the EU since 1992.

On the markets today, a big profit downgrade by Suncorp has triggered selling in financial stocks and sent the S&P/ASX200 down 1.6% to 4895.4 at 12.15pm.

Suncorp revealed this morning that increased costs stemming from the credit crunch mean it is likely to record an annual profit of between $525 million and $550 million in 2007-08, almost half that recorded last financial year.

Unsurprisingly, the news was not well received on the markets, causing Suncorp’s share price to tumble 14.13% to $11.46 by midday.