It was a quiet week for Australian data ahead of Friday’s retail sales release and next Wednesday’s monthly CPI indicator. We look at the Flash May PMI below and check in on weekly consumer confidence and the latest Bloomberg survey of market economists, but if you’re left feeling short on economic content beyond the usual linkage roundup, we talk US debt ceiling, UK economic malaise, and the trade economics of state visits in this week’s Dismal Science podcast.

    I will be doing an in-person economic update in Melbourne on 8 June, details here for the face-to-face version and here for the virtual event.

    Flash PMI indicates private sector activity still expanding, but more slowly

    The Judo Bank Flash Australia Composite PMI output index was 51.2 in May 2023, down from a reading of 53 in April. Private sector activity has therefore expanded for a second consecutive month, albeit at a slower pace than in April. The readings for output and for new orders were both in expansionary territory and Judo Bank noted that the past two months had brought the best PMI readings since the middle of last year. Once again, services drove the growth in activity, with manufacturing output shrinking for the sixth month in a row. That is consistent with a global manufacturing slowdown, softer demand for consumer goods, and a lack of growth in domestic construction activity.

    Reported business confidence across the private sector improved this month, with greater optimism in both the services and manufacturing sectors. Even so, the level of confidence remains below average, reflecting concerns about the business outlook, higher interest rates and inflation.

    The PMI also reported that input cost inflation eased in May even as strong demand growth implied better pricing power, which in turn led to an increase in selling price inflation.

    What else happened on the Australian data front this week?

    The weekly ANZ-Roy Morgan Consumer Confidence Index rose by 1.4 points last week to an index reading of 77.3, driven by improvements in the ‘current financial conditions’ and ‘future financial conditions’ subindices. Even so, ANZ noted that the level of confidence was still among the worst ten results since January 2020, with seven of those results coming between March and May of this year. The index is also 13.5 points below the level reported in the same week in 2022 and has now been below an index reading of 80 for 12 consecutive weeks – the longest stretch sub-80 since the index started to be constructed on a weekly basis in October 2008. Otherwise, the last time that the index spent at least 12 weeks under 80 was during the 1990-91 recession, when the survey was conducted monthly. ANZ reckons that this consistent period of weakness highlights the significant squeeze on households from rising cost of living pressures.

    The same survey’s measure of weekly inflation expectations fell 0.2 percentage points to 5.1 per cent last week.

    The latest monthly Bloomberg survey of economists reported that the perceived risk of an Australian recession edged up slightly in May 2023, rising to a 38 per cent probability from 35 per cent in April. The same poll showed that respondents expect the RBA to hold the cash rate target steady at 3.85 per cent through the first quarter of next year, before starting to ease in Q2:2024. Back in April, the median forecast had the central bank starting to lower rates in Q1:2024.

    Other things to note . . .

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