Australian Manufacturing Growth Slows a Second Month as Rates Cool Demand

Australian manufacturing growth slowed in June for a second month, adding to evidence that the central bank’s interest rate increases are cooling domestic demand.

The performance of manufacturing index fell 3.4 points from May to 52.9, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra today. A figure above 50 shows the industry is expanding.

While manufacturing expanded for a sixth straight month, today’s report shows demand for clothing, paper and machinery shrank in June, a month after central bank Governor Glenn Stevens boosted the benchmark lending rate by a quarter percentage point to 4.5 percent, the sixth increase since early October. Stevens is forecast by all 24 economists surveyed this week by Bloomberg News to keep borrowing costs unchanged July 6.

“Manufacturing growth eased in June confirming the protracted nature of the current recovery,” said Heather Ridout, chief executive officer of the Australian Industry Group. “There remains a considerable way to go before manufacturing returns to the levels of activity of mid-2008.”

The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.

The central bank’s interest-rate moves, which have increased the benchmark lending rate by 150 basis points between October and May from a half-century low of 3 percent, have pushed borrowing costs back to their “average” levels for most business and household borrowers, policy makers say.

Fiscal Stimulus

Manufacturing companies remain “reliant on fiscal stimulus measures and, notwithstanding the better performance of some of the consumer-related sub-sectors, are vulnerable to further interest rate increases,” Ridout said.

A gauge of new orders fell 3.4 points to 51.2, today’s report showed, a drop that Ridout said was “of particular concern.”

“New orders are a pointer to future directions for output and employment,” she said.

A sub-index of production slumped 7.9 points to 53.5, employment slid 2.6 points to 53, and supplier deliveries shed 0.3 points to 54.4, the report said.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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