Activity levels across Australia's manufacturing sector are improving

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Australia’s economy has finally received some good news after a less-than-stellar run lately.

The manufacturing sector, at least what’s left of it, saw activity levels expand strongly in November.

The Ai Group’s manufacturing purchasing managers index (PMI) jumped by 3.3 points to 54.2 last month, leaving it at the highest level seen since July.

It has now risen in each of the past three months.

The index measures changes in activity levels from one month to the next. A reading above 50 points indicates that manufacturing is expanding while a figure below 50 suggests that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

According to the Ai Group, six of the seven subindexes in the survey expanded in November, headed by a strong lift in new orders along with solid growth in sales and exports.

A strong result, particularly the new orders gauge which is seen as a lead indicator for activity levels in the months ahead.

This table from the Ai Group shows how individual components in the survey fared. The group uses three-month moving averages for these readings to reduced month-tom-month volatility.

Source: Ai Group

However, while the vast majority of activity subindices improved during the month, the breadth of the improvement was narrow across the industry with only three of the eight manufacturing sub-sectors reporting better operating conditions in November.

Despite the patchy performance from individual sectors, Innes Willox, CEO at the Ai Group, called the result “encouraging” with “production, sales, exports, employment and new orders all moving forward in November”.

He was also impressed with a strong performance from the machinery and equipment subsector (its PMI rose 0.8 points to 54.9), suggesting that “if this translated into a more substantial pick-up in business investment over the next few months, it would go a long way to making up for some areas of weakness”.

That bodes well for the outlook on business capital expenditure in the quarters ahead, something will receive plenty of attention later Thursday when Australian Q3 business CAPEX figures are released by the ABS.

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