Australian Manufacturing Shrank in May on Soaring Currency

Australian manufacturing contracted in May for the eighth time in nine months as a record-high currency and consumer caution hurt production and exports, a private report showed.

The manufacturing index fell to 47.7 from 48.4 in April, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra today. Fifty is the dividing line between expansion and contraction.

The nation’s factories are lagging behind the mining industry, which is expanding to meet Chinese demand for raw materials and pushing the job market near a level the government views as full employment. The Australian currency reached $1.1012 on May 2, the highest since it was freely floated in 1983.

“The manufacturing industry is clearly under escalating competitive pressures magnified by our very high currency, which is close to 40 percent above its post-float average against the U.S. dollar,” Heather Ridout, chief executive officer of the industry group, said in a statement. “Key input costs such as energy are rising and manufacturers face ever shrinking margins.”

The strength of the local dollar has allowed Reserve Bank of Australia Governor Glenn Stevens to keep the benchmark interest rate unchanged at 4.75 percent for the past five meetings. The central bank said in a report last month that higher rates are likely to be needed “at some point” to contain inflation.

GDP Contraction

The nation’s economy probably shrank 1.1 percent in the first quarter, the steepest contraction in two decades, according to a Bloomberg News survey of economists before a government report due at 11:30 a.m. in Sydney today.

The index’s reading on wages fell 0.8 point to 59.3 and inventories slid 4.9 points to 44.4, today’s report showed. Supplier deliveries climbed 2.6 points to 50.9.

A gauge of employment rose 1.4 points to 46.4 in May, and new orders advanced 2.2 points to 48.6, the report showed. The production measure slumped 6.4 points to 46.9.

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

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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