Manufacturing falls for 25th consecutive month

Lower dollar and interest rates not helping – yet

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australian manufacturing continues to suffer, despite lower interest rates and the falling Aussie dollar.

According to the Australian Industry Group (AIG), Performance of Manufacturing Index (PMI) dropped 7.6 points to 42 in July, compared to the previous month. 50 points marks the separation between expansion and contraction.

So far the falling Aussie dollar, which dropped below 90 US cents for the first time in three years earlier today, is having little positive effect on manufacturers thus far. Interest rates are at all-time lows, and could go even lower next week, with RBA governor Glenn Stevens indicating that the central bank had plenty of room to cut rates if it became necessary.

The report also noted that one third of respondents noted extreme weakness in local demand and consumer confidence. That could put some pressure on the likes of electronics and white goods retailers JB Hi-Fi Limited (ASX:JBH) and Harvey Norman Holdings (ASX:HVN).

Another 15% of respondents pointed to the political uncertainty as a reason for poor local demand. A similar number noted a reduction in demand from their mining and construction sector customers, with some mentioning the closure of manufacturing customers and/or suppliers.

The metal products sub-sector is showing a particularly sharp rate of contraction, and the index has fallen to a record low of 28.6 points. That's bad news for steel producers Arrium (ASX:ARI) ex-OneSteel and BlueScope Steel (ASX:BSL). Wood and paper products also saw a worsening pace of contraction, falling to 35.7 points in July.

Food, beverage and tobacco products was the only sector that expanded in July 2013, with a reading of 54.3 points, suggesting consumers are still spending on essentials. This sub-category tends to hold up during tough economic times.

Foolish takeaway

While the lower dollar will help our exporters, it's a double-edged knife, hitting consumers in the hip pocket with higher petrol prices, while imported goods in stores cost more. The falling dollar is also being blamed by manufacturers for raising input costs. Over the longer-term though, the lower dollar should be good for our manufacturing sector – it may just take some time to work its way through.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »