Australian Manufacturing Index Slumps to Record Low in October

By Jacob Greber

Nov. 3 (Bloomberg) -- Australian manufacturing contracted at a record pace in October as global financial turmoil prompted companies to reduce production.

The performance of manufacturing index fell 6.8 points from September to 40.4, the lowest level since the index was started in 1992, the Australian Industry Group and PricewaterhouseCoopers said in a report released in Canberra today. A reading below 50 signals manufacturing is shrinking.

A fifth straight monthly drop in manufacturing adds to evidence Australia's economy, now in its 17th year of expansion, will cool further after growing at the weakest pace in more than three years in the June quarter. Central bank Governor Glenn Stevens will cut the benchmark interest rate by half a point to 5.5 percent tomorrow, adding to last month's 1 percentage point reduction, according economists surveyed by Bloomberg News.

``The volatility in global financial markets is having an unambiguous impact on Australia manufacturing,'' said Heather Ridout, chief executive officer of the Australian Industry Group. A slump in new orders ``suggests that there is a crisis of confidence arising from a crisis of uncertainty.''

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.

Ridout said there is ``clearly room for further reductions in interest rates.'' The Reserve Bank of Australia will announce its decision on borrowing costs at 2:30 p.m. in Sydney tomorrow.

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