Australia's manufacturing industry surged back into the expansion zone in July

Getty/Rusty Jarrett

It seems as though Australia’s manufacturing industry has surged back into the expansion zone with the AiGroup reporting a Performance of Manufacturing Index increase of 6.2 points (14%) to 50.4 in July.

According to BI markets reporter David Scutt, this is the largest month on month points increase since May 2013, taking the three month average to its highest level since July 2014.

The absolute level of 50.4 is only mildly in the expansion zone but the big move off a very weak 44.2 is a strong recovery.

There is some solid economic pointers in the break up in the data with the survey showing:

Four of the seven activity sub-indexes expanded in July. Manufacturing sales (up 12.9 points to 53.9) expanded for the first time in 14 months, while production (up 10.6 points to 54.2) and supplier deliveries (up 6.3 points to 50.6) reversed sharp declines in June to return to expansion. New orders (up 7.6 points to 49.8) also recovered lost ground to approach stability, but stock levels (down 1.7 points to 47.9) and manufacturing employment (up 2.6 points to 47.5) remained in negative territory. The exports sub-index expanded for a third consecutive month (up 1.6 points to 51.8), reflecting the lower Australian dollar.

If inventories are down because sales are stronger than expected then the only disappointment is employment. But that is entirely consistent with the read we are getting from the NAB business survey.

What appears to be going on, according to AiGroup CEO Innes Willox, is the lower Aussie dollar is doing its job.

“The lower dollar was an important positive factor in the July turnaround in manufacturing performance which saw another lift in exports,” Willox said.

For the market and traders that’s an important indication of the stance the RBA may take in the months ahead and what they might say about the Aussie dollar in the governor’s statement at 2.30pm tomorrow afternoon and then again in the quarterly statement on monetary policy this Friday.

It looks like the lower dollar is finally starting to feed through the economy.

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