Australian manufacturing expanded in May -- the first time in 6 months

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Good news on the economy this morning with the release of the AiGroup’s performance of manufacturing survey which revealed the sector expanded for the first time in six months during May.

The index rose 4.3 points to 52.3 as the Aussie dollar drove manufacturing exports.

Five of the seven activity sub-indexes were above 50 points in May, with the strong lift in manufacturing exports (up 10.9 points to 58.3) primarily reflecting the benefits of the lower Australian dollar, particularly in the food and beverages sub-sector. The new orders (up 5.4 points to 52.8) and production (up 3.6 points to 52.9) sub-indexes both ended lengthy periods of contraction, but manufacturing sales declined for a 12th month (up 3.2 points to 47.9), signaling ongoing weakness in local demand.

While manufacturing is not the economic driver of growth it once was, this is clear evidence that the lower Aussie dollar is working and is likely to be reflected in Australia’s services exports when the AiGroups PSI is released later this week.

While lauding the performance of the dollar-related strength and the continued strength of residential construction as positives for the economy, AiGroup CEO Innes Willox highlighted continuing risks to the economy. “There remains a fine balance however and the rapid decline in mining construction, the progressive closure of automotive assembly and subdued local business investment in machinery and equipment continues to weigh on local demand,” he said.

That’s true but this is good news nonetheless.

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