AU Manufacturing activity falls further

INFLATION rose modestly in September while conditions in the manufacturing sector, hammered by the strong dollar and mounting economic uncertainty, showed no sign of improvement.
The TD Securities-Melbourne Institute monthly inflation gauge rose 0.1 per cent in September, following a 0.1 per cent decline in August, as prices for petrol and alcohol increased.
The Australian Industry Group/PricewaterhouseCoopers performance of manufacturing index sank 1 point to 42.3 in September, remaining below the 50 level that divides contraction and expansion, for the third straight month.


''Caution continues to be the order of the day with most respondents uncertain about the outlook and citing little visibility to business conditions beyond the short term,'' the chief executive of the Australian Industry Group, Heather Ridout, said.
The survey of more than 200 companies showed softness in the food and beverages, wood products and furniture, transport equipment and miscellaneous manufactures sectors. The only sectors expanding were clothing, footwear and basic metals.
''The usual suspects of weak domestic demand, the strong Australian dollar, increased overseas competition and uncertainty surrounding proposed carbon pricing, continues to weigh on the sector,'' Ms Ridout said.
The outlook for economic growth, clouded by European debt and US recession fears, has weighed on business confidence in recent weeks. The most recent plunges on the sharemarket have pushed investors to predict nearly 1.5 percentage points lopped off the official cash rate of 4.75 per cent within a year's time.
Weaker annual inflation bolstered the case for lower rates. The private sector TD Securities index showed that prices rose by 2.8 per cent in the 12 months to September, slowing from 2.9 per cent in the year to August.


Ten of the 12 manufacturing sub-sectors recorded declines.
Clothing and footwear and basic metals were the only sub-sectors that recorded expansions in activity in September.
Ai Group chief executive Heather Ridout said manufacturers remained cautious.
"Most respondents (are) uncertain about the outlook and citing little visibility in relation to business conditions beyond the short term," Ms Ridout said.
"The usual suspects of weak domestic demand - the strong Australian dollar, increased overseas competition and uncertainty surrounding proposed carbon pricing - continue to weigh on the sector."
PwC Australian head of industrial products Graeme Billings said manufacturers were battling tough business conditions.
"Businesses are intent on further efficiency improvements, innovation and trialling new products, services and markets," Mr Billings said.
The new orders sub-index rose 1.2 points to 44.6 in September, showing a slowing in contraction.