Key Takeaways
- Australia’s Composite PMI fell to 50.8 in September, down from 52.7 in August, signaling the weakest private sector expansion in the third quarter.
- Manufacturing activity plunged to 49.6, its sharpest operational decline in 21 months, as factory output and new orders both entered contraction territory.
- Services sector growth moderated to 51.4, marking a four-month low as softer domestic demand and rising costs weighed on business activity.
- Private sector employment declined for the first time since May, with the reduction in headcounts being the most significant since October 2020.
- Input price inflation hit a three-month high, complicating the outlook for the Reserve Bank of Australia (RBA) as it weighs further interest rate hikes to combat persistent price pressures.
The Australian private sector lost significant momentum in September, with the S&P Global Flash Australia Composite PMI dropping to 50.8. While the reading remains above the 50.0 threshold that separates expansion from contraction, it represents a notable slowdown from August's 52.7. The cooling growth was driven by a sharp downturn in manufacturing and a visible deceleration in the services sector.
The manufacturing sector was the primary drag on the economy, with the Manufacturing PMI falling to 49.6 from 52.0 in August. This marks the first contraction for the sector since March and the steepest decline in nearly two years. Manufacturers reported a "sharp drop" in factory output, which fell to 46.4, as domestic and export orders both weakened amid intense market competition and rising raw material costs.
Services activity also showed signs of fatigue, with the Services PMI easing to 51.4 from 53.2. Although the sector recorded its fourth consecutive month of growth, the pace of expansion was the slowest since June. Businesses noted that while new business volumes increased, the rate of growth has slowed significantly as consumers pull back on spending in response to high interest rates and elevated living costs.
Labor market conditions shifted during the month, as private sector firms reported the first reduction in employment levels since May. The modest decline in headcounts was broad-based across both the manufacturing and services sectors. Economists at S&P Global Market Intelligence noted that this trend reflects a loss of business confidence in future growth prospects, leading firms to scale back payrolls to manage rising input expenses.
Inflationary pressures remain a critical concern for policymakers. Input price inflation accelerated to its highest level in three months, fueled by rising energy, fuel, and transport costs. This persistence in price growth comes as the Reserve Bank of Australia (RBA) maintains a hawkish stance. RBA Governor Michele Bullock recently signaled that a further slowdown in demand is necessary to bring inflation back to the bank's 2.5% target, with markets now pricing in a potential rate hike to 4.60% in the coming months.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.