Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Flash composite PMI rises to 57.0 in December, second highest
in past 42 months
Service sector business activity jumps amid looser COVID-19
restrictions, manufacturing sector also sees stronger
expansion
Business optimism lifted by vaccine news
But exports continue to decline, and supply delays remain a
widespread concern
Business activity surged higher in Australia during December as
lockdown measures to contain the spread of COVID-19 were relaxed.
Business expectations for the year ahead also improved, rising to
the highest for over two years, amid news of successful COVID-19
vaccine trials. Exports continued to fall, however, and supply
shortages remained widespread, acting as dampeners on the
recovery.
IHS Markit's flash PMI, measuring output across both
manufacturing and services, rose from 54.9 in November to 57.0 in
December, its second highest since June 2017 and indicating a
marked acceleration of economic growth in the closing month of
2020.
The rate of expansion signalled by the PMI has now accelerated
for three successive months, underscoring how the recovery has
continued to regain momentum after the initial rebound from the
first lockdowns faded in August.
December's improvement in the PMI coincided with a relaxation of
virus-fighting measures. IHS Markit's COVID-19 Containment Index
for Australia fell from 38 to 30 between November and December,
indicating that virus-related restrictions are now the loosest
since the pandemic started. The index peaked at 76 at the hight of
the initial lockdowns back in April, which led to the PMI falling
to a survey-low of 21.7, pointing to a very steep deterioration in
economic growth.
Brighter GDP outlook
The rise in the flash PMI, which is an early estimate based on
around 80% of normal monthly replies, bodes well for GDP. According
to the latest available official data, the economy rebounded in the
third quarter, mirroring the recovery signalled in advance by the
earlier PMI numbers, expanding by 3.3%. However, that expansion
followed a 7.0% decline in the second quarter, and still left the
economy 4.2% smaller than its peak seen at the end of 2019.
The improvement in the recent flash PMI numbers therefore
suggests that the economy continued to close the gap of lost output
due to the pandemic in the fourth quarter, with a broad-based
upturn of both manufacturing and service sector output.
Encouraging forward-indicators
The survey's sub-indices pointed to this strong momentum
persisting into the first quarter of 2021.
First, new orders growth accelerated in December to the fastest
since July 2017. While manufacturers reported a welcome further
upturn in order book growth, it was in the service sector where the
main surge of new demand was seen, with inflows of new business
jumping higher to an extent not seen for nearly three-and-a-half
years as the economy continued to open up from COVID lockdown
measures, especially in consumer-facing sectors.
Second, business expectations for the year ahead rose to the
highest since August 2018 reflecting improved prospects amid
encouraging vaccine news.
Third, with order books filling up and the outlook brightening,
firms took on extra staff for a second successive month in
December, pointing to a further recovery of the labour market. Not
only is this an encouraging sign of businesses gaining more risk
appetite and boosting their expansion plans, but rising employment
should also help bolster the household sector.
Supply delays and falling exports
It was not all good news, however, with exports of both goods
and services continuing to decline during December. Services once
again showed an especially steep fall, largely reflecting ongoing
travel curbs associated with the pandemic, which hit tourism in
particular. Encouragingly, though, the drop in services exports was
the smallest recorded since the decline began back in February.
In manufacturing, the loss of export orders was relatively
modest but nonetheless a disappointment, given recent
signs of improving global trade flows. Companies in part
attributed the decline to weakened demand from China, but also
linked the drop in exports to
shipping delays and container shortages, the latter having
become particularly problematic in recent months as global demand
has picked up.
Supplier delays in fact remained worryingly widespread during
December, as indicated by a further marked lengthening of supplier
delivery times. Inventories of purchased inputs also fell sharply,
reflecting shortages caused by the supply delays, acting as a
potential dampener on production growth in the New Year.
Outlook
While December's flash PMI data add further to signs of
Australia's economy continuing to recover from the pandemic, the
survey also serves as a reminder that the path to recovery remains
challenging. Activities such as travel and tourism are expected to
remain under pressure for some time to come, awaiting full vaccine
roll outs, curbing service sector growth, and manufacturers remain
beset with challenges in terms of the supply of goods and
international trade tensions.
Chris Williamson, Chief Business Economist, IHS
Markit
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.
