Australian manufacturing activity continues to strengthen

Photo: Graham Denholm/Getty Images

Australia’s manufacturing sector continues to strengthen with activity levels improving for a tenth consecutive month in July.

The latest Manufacturing Purchasing Mangers Index (PMI) from the Ai Group rose to one point to 56.0 during the month, leaving it sitting at the highest level since April this year.

The PMI measures 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 56.0, that indicates that activity levels not only improved in July, they did so at a faster pace than June.

That’s good news, marking the tenth consecutive month that activity levels strengthened.

The Ai Group said that there were several positive influences that led to the strong result in July.

“Manufacturers cited increased demand from construction, mining — possibly reflecting commodity price increases — and agriculture for locally manufactured construction materials, machinery and equipment,” the group said following the release of the report.

“Large government funded projects in New South Wales and Victoria are also providing a positive source of demand, as is a strong pipeline of solar and wind power projects.”

Mirroring the strength in the headline PMI figure, six of the seven activity subindices in the survey expanded in July, led by the production measure which rose to 59.0, up from 57.3 in June.

Like the headline PMI, a reading above 50 in the activity subindices indicates that activity levels improved from a month earlier.

Fitting with the recent strengthening across the sector, the employment subindex jumped 8.4 points to 57.4, indicating that staff levels increased at a decent clip over the month.

“This is consistent with recent ABS labour force estimates, showing a recovery in manufacturing employment to May and growth in full-time employment through May and June,” the Ai Group said.

New orders — a lead indicator on future activity levels across the sector — fell 3.7 points to 55.8. This indicates orders grew at a slightly slower pace than June, suggesting that activity levels may moderate in the second half of the year.

Indicating that conditions are broadening across the sector, the group said that six of the eight sub-sectors monitored in the survey recorded an improvement in activity levels from a month earlier.

“Non-metallic mineral products (69.3), wood and paper products (67.0) and petroleum, coal and chemical products (56.3) expanded more strongly than last month,” the group said.

“Food and beverages (55.9), metal products (56.1) and machinery and equipment (58.0) kept expanding but at a slower pace.”

Firms specialising in textiles, clothing, furniture and other products, along with those manufacturing printing and recorded media products, both saw activity levels deteriorate from a month earlier.

Again, like the activity subindices, that was a solid result.

However, despite the encouraging revival across the sector over the past year, there’s plenty of headwinds brewing that could hinder activity levels in the period ahead, says the Ai Group.

“Manufacturers across many sectors are seeing significant challenges from soaring energy costs, higher raw material costs, the stronger Australian dollar, the departure of automotive assembly, strong international competition, and ongoing weakness in the retail sector,” the group said.

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