Up‑to‑the minute data on the economy is now available via “flash” estimates of the CBA PMI’s. The CBA PMI surveys cover manufacturing and services, or 75% of GDP. The ability to access 85% of survey results earlier means that reliable “flash” estimates can be published sooner.
The dip in the PMI below the 50 line that separates expansion from contraction is a significant event. It is the first negative reading in the life of the Australian PMI survey. It indicates a loss of momentum in the Australian economy at the start of 2019. And it underlines the shift in forward guidance by the RBA to a more neutral setting.
The divergence between (contracting) service sector activity and (expanding) manufacturing activity should be noted. It shows the slowdown is not broadly based and the more forward looking components like jobs and business sentiment point to a recovery later in 2019.
The RBA has highlighted the importance of the labour market in ultimately determining the direction of policy interest rates. In contrast to the slowdown in output growth that lowered the headline PMI, the employment subindex improved and points to ongoing jobs growth.
The move lower in PMI readings is part of a global trend and highlights the increasing concerns central bankers hold about the global economic outlook.
Despite weaker PMI readings, the input and output price indexes moved higher in February. Some companies are highlighting rising wage costs and higher fuel prices as key drivers behind the lift.
Rising wage costs are a negative from a business profitability perspective. But, together with positive employment readings, are an offset to the other pressures weighing on consumer spending.
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