SMALL BUT MIGHTY: Australia's manufacturing sector is looking good

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Activity levels across Australia’s manufacturing sector continued to expand last month, providing further evidence that Australia’s economic rebalancing is continuing to strengthen.

The Ai Group’s performance of manufacturing index (PMI) came in at 53.4, down on the 12-year high of 58.1 struck in the prior month.

The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

Although weaker than the figure reported in March, at 53.4, the reading still indicates a solid acceleration in activity levels during the month, continuing the trend seen since July last year.

At 10 months, the consecutive stretch of expansion is now the longest seen since September 2006. It also left the series’ 3-month moving average at 55.0, the highest level seen since July 2007.

According to the Ai Group, six of the survey’s seven activity sub-indexes expanded in April with employment, down 4.2 points to 49.0, the only component to register a contraction.

While this signals a decline in employment, the decline was extremely narrow based on the reading. Despite the disappointing employment read, wage growth strengthened, rising 3.6 points to 57.4.

Elsewhere readings on production, inventories, deliveries, exports and sales continued to expand, albeit at slower rates.

Forward orders, an indicator on future levels of activity, fell by 9.6 points to 52.1, indicating a modest increase from March.

The sharp deceleration in order growth, along with a 1.5 point decline in the survey’s exports gauge, indicates that the higher Australian dollar may now be acting as a headwind, rather than a tailwind, given its recent strength.

The Ai Group also note that the input prices sub-index fell by 6.4 points to 57.3, suggesting “an easing in input price growth related to the recent appreciation of the Australian dollar”.

The table below, supplied by the Ai Group, provides the movements by individual category seen in April.

By sub-sector, five of the eight industries saw activity levels expand, led by the giant food, beverages and tobacco sub-sector whose reading rocketed by 3.1 points to 74.1, the highest level on record.

Innes Willox, Ai Group CEO, suggest the improvement is a welcome development for the sector after a tough decade for Australian manufacturers.

“The current expansion in manufacturing is a much-needed turnaround for a sector that has been through a very tough decade. While margins remain tight, recovering domestic market share and building momentum in a variety of export markets provide a strong foundation for the lift in confidence required for the sector to move up another gear,” he said after the release of the April PMI report.

He also noted that “a budget that boosts incentives for business investment and innovation would come at just the right time for manufacturers to capitalise on recent gains”.

Australian treasurer Scott Morrison will hand down his first budget at 7.30pm AEST on Tuesday, April 3.

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