Australia's manufacturing sector is booming thanks to increased construction activity

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  • Activity levels across Australia’s manufacturing sector continued to improve in April, driven by robust demand from civil engineering, commercial building and residential construction firms.
  • Activity levels have improved in each of the past 19 months, the longest stretch of continuous growth since 2005.
  • Exports fell for the first time since late 2017, providing another sign that global trade levels are slowing.

Activity levels across Australia’s manufacturing sector continued to improve in April, driven by robust demand from civil engineering, commercial building and residential construction firms.

The Australian Industry Group’s (Ai Group’s) Performance of Manufacturing Index (PMI) came in at 58.3 in seasonally adjusted terms, pulling back slightly after hitting a record-high of 63.1 in March.

This index measures perceived changes in activity levels across Australia’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

So at 58.3, activity levels continued to grow at a decent clip in April, just not as fast as they did in March.

Activity has now improved in each of the past 19 months, the longest stretch of continuous growth since 2005.

“With the exception of high energy costs — which continue to eat into margins — manufacturing conditions remain positive on the east coast,” the Ai Group said.

“Manufacturers in New South Wales and Victoria continue to report strong demand because of higher levels of activity in the civil engineering, commercial building and residential construction industries.”

Like the headline index, the internals of the report were also strong, including new orders, a lead indicator on the outlook for activity across the sector.

“New orders, production and sales remained above 60 points, indicating healthy demand and a strong likelihood of further near-term growth,” the Ai Group said.

On new orders, closely watched for what may happen in the months ahead, the Ai Group said the subindex has been expanding strongly since late 2016 and continues to indicate good growth prospects for manufacturing for the remainder of 2018.

Source: Ai Group

Like the headline PMI, a reading above 50 indicates that these areas improved from one month earlier.

However, while the new orders index indicates that domestic demand remains robust, the exports subindex fell heavily to 48.0 in April, logging the first decline since October 2017.

“Exports weakened in the food and beverages and the petroleum, coal, chemicals and rubber products sub-sectors,” the Ai Group said.

Given the Australian dollar weakened in April, this, at the margin, is another indication that global trade may be starting to soften.

This, along with other indicators on global trade, will be watched closely in the months ahead.

As was the case with the survey’s activity subindexes, the Ai Group said activity levels improved in six of the eight sub-sectors monitored.

“Four of the eight sub-sectors reached record highs in trend terms, including the petroleum, coal, chemical and rubber products; metal products; machinery and equipment and textiles, clothing and other sub-sectors,” it said.

It said weaker conditions continued in the wood and paper and printing and recording media sub-sectors, relatively small industries compared to others in the survey.

Following the release of today’s manufacturing report, the Ai Group will present separate reports on Australia’s services and construction sectors in the days ahead.

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