Food manufacturing looks bright, despite business slump

The Australian Industry Group Australian Performance of Business Index (Australian PBI) fell by 2.1 points to 42.6 in August (seasonally adjusted); however, food-related manufacturing has bucked the trend to remain strong.

As renewed activity restrictions and border closures took effect due to the national response to the COVID-19 pandemic, business conditions remained negative across most sectors. (Results below 50 points in the Australian PBI indicate deteriorating business conditions, with lower numbers indicating a faster pace of deterioration in the month.)

The Ai Group report indicated most sectors experienced a contraction in activity and at a faster pace than in July, with the only bright spots noted as food-related manufacturing, distribution and retailing.

The food and beverage products manufacturing sector rose 0.6 points to 57; the machinery and equipment manufacturing sector rose to 1.7 to 53.8; and the TCF, paper, printing products manufacturing sector rose 6 points to 54.6 in August.

Unfortunately, the overall Australian PBI figures indicate a general business slump, which follows Australia’s worst contraction in GDP on record in Q2 2020 (-7.0% q/q and -6.3% p.a.).

In addition to the Australian PBI falling by 2.1 points to 42.6 in August, the PBI production/activity index fell by 1.9 points to 42.8; the PBI employment index slid 6.3 points lower to 40.9; and the PBI new orders index fell by 2.8 points to 44.2; while the PBI input prices index recovered by a further 3.0 points to 57.1 points and the PBI selling prices index improved by another 4.6 points to 45.1.

Ai Group Chief Executive Innes Willox said: “The further slump in business conditions in August comes after the record 7% decline in GDP in the June quarter and dampens remaining hopes of a V-shaped recovery.

“The Australian PBI reading for August, though disheartening, is not at this stage pointing to a further fall in GDP in the current quarter. Much will depend on the impact of the ongoing Victorian restrictions that are weighing down activity in that state and holding back recovery elsewhere.

“The scale of the downturn to date and the severity of the hit to confidence mean that active measures to stimulate the economy will need to continue for some time yet,” Willox said.

The full report can be downloaded here.

Image credit: ©stock.adobe.com/au/Kadmy