The survey hands the RBA a mixed signal days before its 29 September decision: softer demand and job cuts argue for caution, while faster growth in output prices keeps the inflation case for a hike alive. With markets already heavily priced for a move, the data may do more to shape expectations for November than for next week. Energy remains the key transmission channel, with Middle East-driven fuel costs cited as the main source of input price pressure, so oil prices stay central to Australia’s inflation outlook. For the Australian dollar, weaker growth momentum is a modest headwind, although rate differentials are likely to dominate.

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Earlier:

• All four major Australian banks now forecast RBA hike to 4.60% on September 29
• RBA governor Bullock flags inflation risks as higher neutral rates come into focus

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Australia’s private sector kept growing in September, but only just, with factories contracting and firms cutting staff while still raising prices faster.

Summary:

• The flash composite output index fell to 50.8 in September from 52.7, a fourth month of expansion but the weakest of the third quarter
• Services activity slowed to 51.4 from 53.2, while the manufacturing PMI dropped to 49.3 from 52.0, its first contraction reading since March, with factory output falling at the fastest pace in 21 months
• New business grew at its slowest pace in three months, dragged by a renewed drop in manufacturing orders, and export orders fell for the fifth time in six months
• Private sector employment fell for the first time in four months, with the modest decline still the steepest since October 2020
• Input cost inflation hit a three-month high, driven mainly by Middle East-related energy and fuel costs, and output prices rose at a strong and faster pace than in August
• Business confidence fell to a three-month low and further below its long-run average

Australia’s private sector growth slowed to its weakest pace of the third quarter in September, preliminary survey data from S&P Global showed on Wednesday, as manufacturing slipped back into contraction and businesses cut jobs for the first time since May.

The S&P Global Flash Australia Composite PMI Output Index fell to 50.8 in September from 52.7 in August. The reading marked a fourth consecutive month above the 50 level separating expansion from contraction, but signalled only slight growth.

Services remained the main source of growth, although activity expanded more slowly for a second straight month, with the services index easing to 51.4 from 53.2. Manufacturing was the weak spot. The headline manufacturing PMI dropped to 49.3 from 52.0, its first sub-50 reading since March, and factory output fell at the sharpest rate in 21 months as order books contracted again.

Softer demand was at the heart of the slowdown. Total new business rose for a third month, but at the slowest pace of that run, weighed down by the renewed fall in manufacturing orders. New export orders declined for the fifth time in six months, again linked to weakness among goods producers.

The labour market signal was notable. Private sector employment fell for the first time in four months, and while the decline was only modest, it was the steepest since October 2020, with job losses spread across sectors. Backlogs of work still rose slightly.

Price pressures moved in the opposite direction to activity. Input cost inflation rose to its highest in three months, with survey respondents frequently citing the conflict in the Middle East and its effect on energy and fuel costs as the main driver. Output prices rose at a strong rate that was faster than in August. S&P Global noted, however, that inflation rates remained well below those seen during the second quarter. The pick-up in cost pressures was concentrated in services, while manufacturers saw some easing in input inflation but longer supplier delivery times.

Business confidence slipped to a three-month low and further below its long-run average, with firms citing concerns over costs, demand and customer retention. An economist at S&P Global Market Intelligence said the economy ended the quarter on a weaker footing, although it still managed to sustain growth over the quarter, an improvement on the second quarter’s subdued performance.

The data arrive shortly before the Reserve Bank of Australia’s 29 September policy decision, where a rate increase is widely expected. Slowing demand and falling employment point to a cooling economy, but firmer selling prices will keep the focus on inflation risks. Final September manufacturing data are due on 1 October, with services and composite figures following on 5 October.

This article was written by Eamonn Sheridan at investinglive.com.