Manufacturing Index continues to fall

Small manufacturers are being urged to refine their operations in 2011, with the latest Australian Performance of Manufacturing Index falling 1.3 points.

The PMI for December 2010, released by the Australian Industry Group and PricewaterhouseCoopers, shows nine out of 12 sub-sectors recorded declines in activity, including clothing and footwear, textiles, wood products and furniture.

Clothing and footwear recorded the sharpest decline in activity, dropping 35.6 points to 27.3, which is the lowest level since February last year.

Increased competition from cheaper imports hindered the textiles subsector while new orders remained in negative territory for the fourth consecutive month.

Survey respondents cited the strong Australian dollar, higher interest rates and slack domestic demand as the major influences inhibiting the manufacturing industry.

Australian Industry Group chief executive Heather Ridout says the pressure looks set to continue due to the strength of commodity prices and heavy investment in the mining sector.

“These forces are pushing up the level of the dollar and expectations about the directions of interest rates and inflation,” Ridout says.

“These structural pressures need to be at the centre of policy attention as we… grapple with the risks of becoming an unbalanced and insufficiently diversified economy into the future.”

Graeme Billings, global head of industrial manufacturing at PricewaterhouseCoopers, says manufacturing businesses need to respond to the declines in activity and the continuing slump in new orders.

“It is imperative that businesses continue to search for efficiencies, improvements and innovative approaches to their markets, products and business models,” Billings says.

He says businesses should focus on their cost base within the manufacturing process by refining things like supply chains and logistics.

He also advises businesses to value-add to their operations by securing skilled labour and talent in order to remain sustainable.

Billings says he hopes activity picks up but there’s no guarantee due to the unpredictable nature of interest rates and the Australian dollar.

“In the short- to medium-term, manufacturing will do it pretty hard,” he says.