The Judo Bank/S&P Global Composite PMI Index for May continues to signal expansion (above 50 on LHS), albeit at a slightly slower rate of 52.6 compared to 53.0 in April.
The Manufacturing PMI continues to signal contraction (below 50) but the rate slowed to 49.6 in both April and May.
The Services PMI continues to flag expansion, however, but at a slower rate of 53.1 compared to 53.6 in April.
The May report was quite upbeat. Warren Hogan, Chief Economic Advisor at Judo Bank:
“The increase in the employment index to its highest level in more than six months suggests that private sector demand for labour remains strong, particularly in light of the weakness in consumer spending over the first three months of the year. The results are consistent with the official employment figures, which show an average monthly increase in total employment in Australia of around 40,000 in 2024, made up of both full-time and part-time jobs.
….The Flash PMI report points to resilience in Australia’s business sector despite ongoing cost pressures and skill shortages. Most impressive has been the ability for businesses to navigate this difficult operating environment as well as weak consumer spending. With the Government injecting more than $30bn into household finances in 2024/25 through cost-of-living relief and tax cuts, Australian businesses should be expecting to see some improvement in consumer spending.”
April unemployment rose to 4.1% in April despite the increase in hiring — the result of a workforce swollen by record-high immigration.
Real per capita income tells a more depressing tale for consumers, declining more than 5.0% p.a. in 2023.
Household mortgage arrears have climvbed to 0.70%, the highest rate in the last 8 quarters.
Source: Equifax
Insolvencies
All is not well in the business sector despite the composite PMI signaling expansion. Insolvencies (green) soared to a monthly high of 1,136 in March.
Source: Equifax
Late payments are also rising, with the average days beyond terms rising to 6.5 days in Q1 of 2024, the highest since 2020.
Source: Equifax
Cyclical Sectors
The construction sector has been hard hit, with 2758 insolvencies, or 2.1% of all business entities, in Q1 of 2024.
Source: Equifax
Accommodation and food services had a lower number of insolvencies, at 1484 in Q1, but is a higher 3.3% of all entities.
Source: Equifax
Trade payment data also flags financial stress in the construction sector, with average days beyond terms rising to 12.3 days in Q1 of 2024, from 10.2 days in the preceding quarter.
Source: Equifax
Conclusion
Australia is already in a real recession, with real per capita GDP and real disposable income both falling. This is disguised by a massive surge in immigration which has kept aggregate GDP growth above zero.
Real GDP grew 0.2% in Q4 of 2023 but per capita GDP declined by 0.3%. Annual GDP growth of 1.5% for 2023 falls to -1.0% when measured per capita.
Construction and Accommodation & Food Services are the largest cyclical employers in the economy:
Household finances may receive a boost from the latest budget but unemployment is expected to rise as the number of small business failures increases.
Acknowledgements
- S&P Global: Judo Bank Flash Australia Composite PMI
- ABS: Labour Report, April 2024
- ABS: Labour Force, Detailed
- ABS: Australian National Accounts, 2022-2023
- Equifax: Quarterly Commercial Insights, 2024 Q1
- Macrobusiness: Australia’s never-ending per capita recession