Manufacturing sector improves, Inflation set to fall, Shares rise: Economy round up

The month has opened with some good news for the economy. New data shows that conditions improved slightly in the Australian manufacturing sector during the last month, thanks to a wave of new orders.

The Australian Industry Group / PriceWaterhouseCoopers Performance of Manufacturing Index recorded a 7.4 point increase to 37.5 in May – still well below the 50-point mark that separates expansion and contraction but the highest level in seven months.

“The lift in the Australian PMI brings it into much closer alignment with the direction and strength of global PMIs,” AiG chief executive Heather Ridout said in a statement.

“The slowing of falls in new orders and production across the sector in this month’s data may indicate that stimulatory fiscal and monetary policy is having a stabilising effect.”

Meanwhile, a private inflation gauge has revealed that pricing pressure eased in May, providing room for another cut to the official interest rate.

The TD Securities-Melbourne Institute monthly inflation gauge dropped by 0.3% in May, with annual inflation dropping to 1.5% from 2.1% in April – the lowest annual pace since the gauge began.

The biggest price falls were found in rental accommodation prices, which dropped by 1.5% to be down 4.5% since March, travel and alcoholic beverages. Fuel prices did not drop much during May, but the index shows a drop of 20% from the previous year.

“The low inflation outcome and now genuine threat of deflation should be a timely reminder for the RBA board that interest rates are too high and rate cuts should be delivered,” TD strategist Annette Beacher said.

Fruit and vegetables, books, newspapers, magazines and household supplies all experienced price increases.

But the news hasn’t been so good everywhere, with the Australian Bureau of Statistics’ Business Indicators showing a quarterly drop in wages, gross operating profits and inventories.

Wages and salaries dropped a seasonally adjusted 0.4% from the December to March quarter, with companies’ gross operating profits also dropping a seasonally adjusted 7.2%, despite growing 6.8% over the previous 12 months. Inventories also fell by 1.2%.

Sales of goods and services in the manufacturing sector dropped by 2.8% during the quarter, with wholesale trade sales experiencing no growth or decline.
The Australian share market has started to fall shortly after opening today, but quickly rebounded on the back of reports that commodity demand will increase in the near future.

The benchmark S&P/ASX200 index was up 49.3 points or 1.29% to 3,867.3 at 12.07 AEST. The Australian dollar also rose above US80 cents for the first time in eight months.

Westpac lost 0.8% to $18.72 as ANZ lost 0.9% to $15.75. Commonwealth Bank shares gained 0.6% to $35.36 while NAB gained 0.2% to $22.07.

Shares in supermarket group Metcash have risen 0.47% to $4.20, after it announced a 14% rise in full-year profit after tax to $219.7 million from $193.1 million. The company said it expects earnings per share to grow by up to 10% if the economy does not deteriorate further.

“While the trading environment remains volatile and financial uncertainties continue to negatively impact overall consumer spending, we see no weakening in the core grocery market served by Metcash,” the company said in a statement.