The Australian manufacturing sector has continued its impressive run of recent growth.
April figures for the Purchasing Manufacturers Index (PMI) released by the Ai Group climbed by 1.7 points to 59.2 points.
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.
The result marks seven straight months of growth in the sector, and was just off February’s 15-year high of 59.3 points.
Although manufacturing makes up a smaller percentage of the economy than it once did, the data is particularly strong given sluggishness in other benchmark economic measures such as GDP and wage growth.
Once again all seven sub-indexes expanded in April, led by growth in new orders and sales.
“New orders remained elevated (61.5 points) while sales surged higher (65.5 points), as did production (60.7 points), exports (58.6 points) and employment (55.9 points).”, the report said.
“Inventories eased to a more modest rate of expansion (51.2 points) in April”.
This table provides a summary of how each sub-index performed in April:
The report said that the growth in manufacturing employment was consistent with recent jobs data from the ABS which showed that manufacturing jobs increased by 39,900 in the year to February 2017.
In a rare positive sign for Australian wage growth, the sub-index for wages rose by 4.4 points to a “relatively elevated” 58.4 points in April.
Other input costs also increased by 4.3 points to 69.8 points. Selling prices also rose by 5.4 points to 58.9 points in April, their highest monthly result since September 2008.
Manufacturers may be regaining some ability to pass though cost increases, although their input costs and wages are now increasing briskly also”, the report said.
“This may point to more inflationary conditions (for example by higher input commodity prices and especially energy prices), as opposed to improvements in manufacturers margins.”
When broken down by individual sub-sectors, the Ai Group reported that seven of the eight reported growth in activity in April. That’s up from five of eight in March.
“Food & beverages continued its strong run of expansion (60.1 points), as did wood & paper products (64.4 points)”, the report said.
“The recovery in printing & recorded media strengthened (61.7 points), as did non-metallic mineral products (63.3 points), metal products (61.2 points), machinery and equipment (60.5 points) and petroleum, coal & chemical products (56.4 points).”
“The small but very diverse textiles, clothing, furniture and other products sub-sector contracted again in April and at a faster rate (44.8 points).”
“Comments from manufacturers in April indicate demand continues to improve. Increasing exports are a key theme, with several manufacturers reporting success in new markets in Asia. Stronger output and prices in the local agricultural and mining sectors is supporting demand for some types of machinery, equipment and chemicals, while large public infrastructure projects are fuelling demand for building materials, metals, transport equipment and others.”
The report said that Cyclone Debbie had reduced activity in Queensland and NSW, but the overall effect on the manufacutring sector would be minimal.
“Rapidly rising energy costs remains an urgent issue for many manufacturers. At the same time, selling prices are relatively subdued, with surpluses in some markets and intense overseas competition keeping margins tight,” the report said.
This chart shows the divergence between the PMI survey and the percentage change in manufacturing output by the ABS.