Decade not off to good start for business activity

By Grace Ormsby

January 28 2020
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Bushfires are partially to blame for the decline in output across the manufacturing and services sectors seen in January, according to an economist.

Decade not off to good start for business activity

The latest “flash” Commonwealth Bank of Australia Composite Purchasing Managers’ Index (PMI) has pointed to a sharp fall in activity across certain sectors, showing that “the softness in the Australian economy at the end of 2019 has spilled over into the early part of 2020”, as highlighted by chief economist Michael Blythe.

The bank noted that the “Flash Composite Output Index” was down to 48.6 from 49.6 for January.

A reading below 50.0 signals a deterioration in business activity on the previous month.

“There is some fundamental weakness in the Australian economy associated with consumer constraint, the residential construction and the reluctance of business to invest,” Mr Blythe observed.

But he noted how the PMI results are also being influenced by the bushfires around the country.

The newest analysis comes after earlier forecasts from the bank that suggested business disruption caused by the bushfires would see some activities delayed or deferred with flow-on effect to sentiment.

This was expected to be particularly felt across regional areas and the tourism industry.

Mr Blythe said “at this stage, the impact seems to be mainly through disruption to supply chains”, noting that supplier delivery times have increased sharply.

Despite this, it’s not all doom and gloom, according to the economist.

“The gloom should not be overstated,” he continued.

“Key leading indicators like new orders are showing a notably stronger result than the ‘headline’ PMI readings.”

As a result, Mr Blythe said that “expectations about future business remain at encouraging levels”.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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