Manufacturing shrinks for tenth straight month

The Australian manufacturing industry shrank for the tenth consecutive month in December.

A monthly index of the sector by the Australian Industry Group recorded a reading of 44.3 in December, unchanged from November, but well below the 50-point level that separates expansion from contraction.

All eight industry sub-sectors included in the Performance of Manufacturing Index were below 50, indicating that the problems for manufacturing were widely spread.

In a sign of further weakness ahead, the new orders index was 45.7, and the Ai Group's chief executive Innes Willox says more rate cuts are needed to boost demand.

"Forward orders continue to track weakly suggesting demand has not yet turned the corner," he noted in the report.  "The recent rate cuts by the Reserve Bank are yet to offset the range of factors adversely impacting the industry and further reductions are likely to be needed over the next few months." While most sub-indices in the report were below 50, the cost of manufacturing inputs continued to rise, putting further pressure on the industry.

"A high Australian dollar and higher costs, particularly for energy due to the impacts of the carbon tax and, in some states, the costs associated with investment in network infrastructure, have all taken their toll on margins and activity," Mr Willox added.

The rise in costs contrasted with a fall in selling prices (with the sub-index reading of 43), putting pressure on profit margins.

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