Australian manufacturers just had their best month in 15 years

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Activity levels across Australia’s manufacturing sector improved sharply last month, expanding at the fastest pace seen since May 2002.

The Australian Industry Group’s manufacturing purchasing managers index (PMI) jumped by 8.1 points to 59.3 in February.

Not only does that signal that activity levels improved at the fastest pace in 15 years, it was the largest one-month gain on record.


It also left the series three-month moving average — a better overall gauge of the trend in activity levels — at the highest level since January 2005.

The PMI measures changes in activity levels across Australia’s manufacturing sector from one month to the next. It ranges from a score of 0 to 100, with 50 deemed neutral. Anything above 50 indicates that activity levels improved, while a reading below 50 suggests activity levels declined.

So, at 59.3, that says that activity levels not only grew last month, they soared.

That’s good news, even forgiving that the sector is now a far smaller component within the Australian economy.

Fitting with the headline PMI figure, the internals of the report were incredibly robust with six of the seven activity sub-indexes expanding in February.

“Encouragingly for the outlook, new orders and sales grew strongly,” the Ai Group said.

“Production jumped from stable conditions in January to a strong expansion, as did employment. Deliveries lifted out of contraction while exports strengthened further.

“Reflecting this surge in demand, inventories contracted mildly in the month,” the group added.

This table from the Ai Group shows the internal movements in the February report.

Source: Ai Group

And mirroring those outcomes, confidence across the sector also improved, led by the nation’s larger sectors.

“Comments from manufacturers in February indicate that demand looks to be increasing and confidence returning to some of the larger sub-sectors such as food processing and machinery and equipment, other than auto,” the group said.

“Exports are continuing to provide a good source of growth, as are large transport infrastructure projects and increased activity in parts of mining and agriculture in response to the recovery in prices for bulk commodities, wool and some grains.”

Partially offsetting those positives, respondents said that “energy costs and energy reliability are posing a significant threat to ongoing profitability and viability for some manufacturers”, acknowledging that “rising raw materials costs and supply constraints are causing increased price pressure and delaying some supplies.”

Firms also noted that intense competition is continuing, particularly from overseas firms.

Following the release of the stellar manufacturing PMI report, attention will now turn to the release of activity gauges from Australia’s services and construction sectors in the coming days, far larger components within the Australian economy.

A repeat performance from those indicators, particularly for services, will only help to fuel confidence that the Australian economy is humming in early 2017.

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