Australia Manufacturing Contracted for 4th Month in December

Australian manufacturing contracted in December for a fourth month as higher borrowing costs curbed consumer spending and the nation’s currency surged to a record, eroding export earnings.

The performance of manufacturing index fell to 46.3 from 47.6 in November, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra today. A number below 50 indicates contraction.

The nation’s factories are lagging behind the mining industry, which is expanding to meet rising Chinese demand for raw materials and pushing the job market close to a level the government views as full employment. The Australian currency rose 14 percent against the U.S. dollar last year, driving down the cost of imports and eroding exporters’ competitiveness.

“The continuation of flat conditions in the sector reflects accumulating structural pressures mounting on the industry along with other trade-exposed sectors in the wake of the mining boom,” Heather Ridout, chief executive officer of the Australian Industry Group, said in a statement. “These forces are pushing up the level of the dollar and expectations about the directions of interest rates and inflation.”

The Reserve Bank of Australia left interest rates unchanged last month after boosting borrowing costs in November to contain expected faster inflation in 2011, citing expectations for a “large expansionary shock” from trade. The bank has increased the overnight cash rate target seven times to 4.75 percent since October 2009.

Hiring Boom
Australia is undergoing a hiring boom as companies including BHP Billiton Ltd. and Rio Tinto Group increase shipments of iron ore and coal to China. Employers added 366,000 jobs in the first 11 months of last year, the most in more than three decades.

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.

The contraction was led by a decline for the clothing and footwear industry, today’s report shows.
A gauge of employment fell 1.8 points to 44.1 in December, and new orders rose 1 point to 44.3, today’s report showed. An index of production declined 2.4 points to 46.6.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net