PMI for Australian factories unchanged at 49.6; orders decline at steepest pace since 2024

Policymakers face an awkward combination in the survey readings: output and demand are shrinking while cost and price pressures accelerate. Weaker orders were blamed partly on higher borrowing costs, and the inflation indicators point to goods-sector price pressure gaining strength rather than cooling, muddying any argument for easing. The conflict in the Middle East is pushing up Australian factory expenses through fuel, freight and slower deliveries, meaning any fresh escalation near the Strait of Hormuz would threaten higher goods inflation. For the Australian dollar, the data reinforce the picture of softer economic activity without delivering a convincing sign that inflation is easing.

Australian manufacturers are under pressure from two directions: orders are contracting at their quickest pace in nearly two years, while shipping disruptions tied to the war drive up costs and prices.

Summary:

• October's S&P Global Australia Manufacturing PMI came in at 49.6 for a second consecutive month below 50, tying with the lowest level since December 2024.
• The decline in new orders was the steepest in nearly two years, with companies attributing it to higher prices, elevated borrowing costs and softer demand; export orders slipped only slightly.
• Employment decreased for a second straight month, with the drop the sharpest in seven months; firms also trimmed purchasing and reduced input and finished goods inventories.
• Delivery times worsened at one of the steepest rates since mid-2022, with firms citing Middle East war-related shipment delays and port congestion as contributing factors.
• Input costs climbed at their quickest pace since June, while the pace of selling-price increases quickened for the first time in five months, coming in above the historical average.
• Confidence among businesses improved relative to September's low point, although it remained beneath the long-run average.

S&P Global's survey data, issued on Sunday at 2200 GMT (1700 US Eastern), showed Australian manufacturing shrank for a second consecutive month in October, with the fastest fall in new orders in nearly two years coming alongside more difficult supply conditions and higher costs.

The index itself was steady at 49.6, remaining under the 50 threshold that distinguishes growth from contraction and equal to the lowest reading posted since December 2024. Production decreased at the same solid clip as the prior month, a drop S&P Global characterised as among the sharpest since late 2024.

Weak demand was the central problem. The drop in new orders was the quickest registered since December 2024, and participants in the survey pointed to higher prices, increased interest rates and a weaker underlying demand backdrop. New export business declined for a second month, but only modestly. In response, factories shed workers at the fastest rate in seven months, scaled back purchasing, and drew down inventories of both raw materials and finished goods. Orders awaiting completion also fell at a faster clip as spare capacity grew.

The supply side worsened as well. Vendor delivery times stretched at one of the most pronounced rates since mid-2022, with companies mentioning delivery holdups tied partly to the Middle East conflict and congested ports. These holdups pushed shipping expenses up and, together with costlier raw materials, supplier charges and fuel, helped produce the fastest input-price increase since June.

Some of the cost strain was transferred to buyers. Factory gate prices increased more quickly for the first time in five months, with the pace exceeding the survey's long-term average.

An S&P Global Market Intelligence economist characterised the opening of Q4 as a double blow for the country's factory sector, with supply bottlenecks compounding softening demand.

Sentiment offered one mildly encouraging sign. Businesses still expected production to grow over the coming year, and optimism bounced back a little from September's trough, albeit staying under the historical norm. Sustaining that recovery probably hinges on how soon shipping problems resolve and whether demand firms up while borrowing costs and elevated prices continue to squeeze clients.