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A further easing of COVID-19 restrictions in Australia enabled
private sector growth to accelerate in November according to flash
PMI™ data. That said, supply chain issues persisted, contributing
to continued price increases while reports of labour shortages
remained evident from the latest survey.
Pent-up demand unleashed with further easing of
COVID-19 restrictions
The latest IHS Markit Flash Australia Composite PMI™* revealed
that growth momentum in the private sector accelerated in November,
with economic confidence and activity boosted by the further
reopening of the Australian economy. This is consistent with the
trend observed from the IHS Markit Australia COVID-19 Containment
Index, which pointed to the lowest degree of resrtiction since
May.
IHS Markit Flash Australia Composite PMI
Both manufacturing and services output growth were comparable in
November, rising in each case to the fastest since June, which was
prior to the latest COVID-19 Delta wave hit to the economy. Growth
momentum was also shown to have yet to peak at the current
juncture.
Business confidence notably also improved to signal rising
expectations among private sector firms for output and activity to
continue expanding in the coming 12-months, according to the Future
Output sub-index indication.
Output by sector
Employment conditions improve but labour shortages woe
remains
Employment levels rose in tandem with demand and output into
November, with services employment growth outstripping that of
manufacturing in line with reopening trends. While official
employment data continued to suffer a hit in the latest October
release, the outlook as suggested by the PMI data and easing of
COVID-19 containment measures point to potentially positive news
ahead for the official employment gauge.
Employment PMI vs employment change
That said, signs of labour shortages continued to present
themselves as evident through anecdotal evidence across both
manufacturing and services. Vaccination requirements in particular
were frequently cited as reasons for a fall in employment levels
for private sector firms. Indeed, skill shortages and mismatches
owing to COVID-19 related restrictions had been a risk expected by
our economics team and the translation to any earlier than expected
wage growth will be closely monitored by the Reserve Bank of
Australia (RBA) and markets alike. The latest update on November 22
for vaccinated students and workers to enter Australia may provide
some relief which we will be studying with upcoming PMI
releases.
Reopening shaped by further price
pressures
Another side effect of economic reopening has been a boost to
prices, with Australia's core inflation rate having touched a
six-year high in Q3. Headline CPI printed 3.0% year-on-year (y/y)
and can be seen moving in line with the trend of the PMI price
sub-indices. Anecdotal evidence suggested that the increase in
input prices had been attributed to an assortment of costs such as
higher raw materials and shipping prices. These reinforced the view
that the current surge in prices had been pandemic-led and may
eventually ease as supply constraints clear.
Nevertheless, with input price inflation having surged to a
survey record in the latest flash November survey, the situation
appears to only be aggravating in the short-term. Any shift in
inflation expectations alongside persistent inflation pressures
could compel the RBA to act earlier, though IHS Markit economists
continue to pencil in a late 2023 first rate hike for
Australia.
Composite Prices Indices vs Australia CPI
*The IHS Markit Flash Australia Composite Output Index is a
GDP-weighted average of the IHS Markit Flash Manufacturing Output
Index and the IHS Markit Flash Services Business Activity Index.
Flash indices are based on around 85% of final survey responses and
are intended to provide an advance indication of the final
indices.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
