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Steep fall in Australian business activity let by services sector

The latest Commonwealth Bank ‘Flash’ Purchasing Manager Index (PMI) signals a steep decline in business activity in March, with the services sector posting a much faster reduction in activity than observed in the manufacturing sector.

“The sharp deterioration in PMI readings during March underline the increasing impact of the coronavirus on the Australian economy,” said Michael Blythe, Commonwealth Bank’s chief economist. “The services sector is being hit hard by the cancellation of events, general fears about social interaction and a very sharp decline in offshore demand as travel restrictions bite.”

In March, coronavirus contributed to the fastest fall in manufacturing production in the survey’s near four-year history, however some manufacturers expanded output due to a lack of goods coming from China.

“The manufacturing sector is faring a little better but the leading indicators are flashing warning signs,” commented Blythe. “The deterioration in supplier delivery times is accelerating, highlighting the disruption to supply chains. And the lower Aussie dollar is pushing input prices for manufacturers up at a rapid rate.”

In March, the Flash Composite Output Index was down to 40.7 from 49.0 in February, wIth readings below 50.0 signalling a deterioration in business activity on the previous month. With the Flash Services Output Index falling to 39.8, from 49.0 in February, and the Flash Manufacturing Output Index falling to 50.1, from 50.2 in February.

“The one slightly more positive indication from the flash PMI readings is the relatively muted pull back in the employment indexes,” Blythe added. “This response offers some hope that, with the right mix of economic policies, the damage to the labour market from the coronavirus can be contained.”

PMIs provide reliable advance indications of economic growth, employment and price trends. The CBA ‘flash’ PMI is based on around 85% of final survey responses and final indices for March will be published in approximately one week.

 

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