Australian Manufacturing Contracted in August for Third Month

By Jacob Greber

Sept. 1 (Bloomberg) -- Australian manufacturing contracted in August for a third month, reinforcing the central bank's view that the economy is slowing enough to cut borrowing costs as soon as tomorrow.

The performance of manufacturing index rose 0.1 points to 47 from July, when it fell 0.1 points, PricewaterhouseCoopers and the Australian Industry Group said in a report released in Canberra today.

The index was below 50 for a third month, signaling manufacturing is shrinking. Australia's central bank will probably cut its benchmark interest rate for the first time in almost seven years tomorrow as the nation's 17-year economic expansion slows, according 22 of 23 economists surveyed by Bloomberg News.

``The contraction in manufacturing activity is very worrying and the case for cutting interest rates is compelling,'' Heather Ridout, chief executive officer of the Australian Industry Group, said in an e-mailed statement.

``With new orders falling sharply and the price of inputs continuing to rise, the index shows there is increasing pressure on future production,'' Ridout said.

Manufacturing accounts for 10 percent of gross domestic product and employs one-tenth of the workforce.

The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net