Australia's Private Sector Growth Stalls as Employment Contracts for First Time Since 2021
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Australia's private sector growth weakened in December, ending a period of expansion and marking the first decline in employment since August 2021, according to a latest report by S&P Global Market Intelligence.
The S&P Global Flash Australia PMI Composite Output Index fell to 49.9 in December, down from 50.2 in November and signaling a marginal decline in overall output. This follows two consecutive months of expansion.
The slowdown was driven primarily by a sharp downturn in manufacturing production, where firms cited deteriorating market conditions. Services activity also softened, reaching its weakest point in the current 11-month expansionary period.
New order growth also softened, with the seasonally adjusted New Orders Index posting its lowest reading in three months. This suggests a modest rise in new work inflows, with growth limited to the service sector while manufacturing new orders declined at the sharpest pace since October.
Despite the softening of business activity, business confidence rose for a third straight month in December. Firms across both manufacturing and services expressed optimism about the future, citing hopes that lower interest rates and increased business development efforts will stimulate growth in 2025. This optimism, while still below the survey's long-run average, is the highest seen since May 2022.
The reduction in overall business activity and slower new business growth led to a decrease in staffing levels for the first time since August 2021. While marginal, this job shedding was observed primarily in the growing service sector.
Cost pressures intensified in December, with average input prices rising at quicker rates in both manufacturing and services. Firms cited higher input material, transportation, and labor costs as contributing factors.
Despite the rise in input prices, the rate at which output prices increased remained unchanged from November and softer than the pace of input cost increases. This suggests that some firms opted to partially absorb cost increases to support sales amid rising competition.
"December's S&P Global Flash Australia PMI reflected a softening of business conditions in the final month of the year," said Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence. "While the smaller goods producing sector led the downturn, services activity growth notably softened to the joint-slowest recorded since the expansion streak commenced in February."
Pan also pointed out that the softening of business conditions and muted selling price inflation could support the Australian central bank's decision to lower interest rates in the new year. However, rising cost pressure will need to be monitored for potential pass-through to selling prices in the coming months.