Australia’s manufacturing sector ended 2014 with a contraction in activity, due mainly to a big drop in new orders.

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) fell by 3.2 points to 46.9 in December. (Readings below 50 indicate a contraction in activity).

Only two of the seven activity sub-indexes – those for employment (up 4.7 points to 52.5) and exports (up 2.9 points to 51.0) – were above 50 points.

The new orders sub-index fell sharply (down 10.6 points to 43.7) following two months of mild expansion, reflecting slower growth or a decline in new orders across the manufacturing sub-sectors.

Manufacturing production also contracted for a second month (down 1.4 points to 46.0). Reflecting the weak trading conditions, supplier deliveries (down 3.5 points 48.5) and stocks (almost unchanged at 45.4) also contracted in December.

As in November, four of the eight manufacturing sub-sectors expanded in December. The large food, beverages & tobacco sub-sector continued to expand (up 1.3 points to 60.4), as did the smaller wood & paper products sub-sector – but at a much slower rate, dropping 10.5 points to 51.1. The textiles, clothing & furniture (up 4.2 points to 58.6) and non-metallic mineral products (up 12.4 points to 62.6) sub-sectors also expanded for a second consecutive month.

Ai Group Chief Executive, Innes Willox, said: “We would have hoped to have seen a stronger Australian PMI in the lead-up to Christmas, but the finding is consistent with other publicly released data.”

Respondents to the Australian PMI welcomed the further depreciation in the Australian dollar, but noted that the level of the dollar continues to encourage strong import competition.

Mr Willox said business sentiment and appetite for investment remain weak.

“The closure of Australian automotive assembly facilities now under way, plus the rapid decline in mining investment activity, are also weighing heavily on demand for locally made machinery inputs and components,” he said.

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