Australian PMI Expands To 50.7 In July , The First Positive Move In 8 Months

A Vegemite factory in Melbourne. Graham Denholm/Getty Images

Surprising news this morning on signs of renewed strength in the Australian manufacturing sector, according to new data on production, new orders, deliveries, inventories and employment from the Australian Industry Group.

The Australian PMI (Australian Performance of Manufacturing Index) edged into positive territory in July, following eight months of contraction, increasing by 1.7 points to 50.7 (readings above 50 indicate an expansion in activity).

Across the eight manufacturing sub-sectors, only food, beverages and tobacco (51.7 points) and the smaller wood and paper products (67.2 points) expanded in July.

New orders (51.9) grew for the third consecutive month, while manufacturing employment increased by 4.7 points to 50.2.

Australian Industry Group chief executive Innes Willox said the manufacturing sector showed resilience in the face of strong headwinds with its first shift into growth territory this year.

“Production, new orders and employment were all higher, providing welcome reward for manufacturers’ ongoing efforts after a very disappointing first half of the calendar year,” he said.

Nevertheless, respondents expressed renewed concern about the strong Australian dollar.

The high currency is maintaining intense pressure on exporters and import-competing businesses facing weak demand and low prices for locally made products.

With wages and input costs continuing to edge higher, there were very few signs that manufacturers’ margins are recovering sufficiently to attract much-needed investment into the sector.

Other findings:

  • The large metal products, machinery and equipment, and petroleum, coal, chemicals and rubber products sub-sectors all contracted this month (below 50 points).
  • Four of the five activity sub-indexes were above 50 points: new orders expanded for the third consecutive month (51.9); and manufacturing employment increased by 4.7 points to 50.2, following seven months of contraction. On the negative side exports contracted, falling 3.5 points to 48.8.
  • Both the stocks and sales sub-indexes remained in contraction, albeit at decelerating rates.
  • Wages and input costs continued to grow. The average wages sub-index climbed 13.1 points to 69.6 (unadjusted).

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